United Continental Holdings Inc (UAL) Bull Targets Record Highs

United Continental Holdings Inc has yet to see the north side of $70

by Karee Venema

Published on Dec 1, 2014 at 10:26 AM
Updated on Apr 20, 2015 at 5:32 PM

After rallying 10.7% last week amid a steep sell-off in crude oil, shares of United Continental Holdings Inc (NYSE:UAL) are down 2.4% this morning to linger near $59.78. However, with the stock's 14-day Relative Strength Index (RSI) perched at 72 -- in overbought territory -- a near-term pullback may have been in the cards. Nevertheless, one option bull in today's session is betting on UAL to bounce back in a big way over the next several weeks.

Taking a quick step back, calls are trading at four times what's typically seen at this point in the day. Short-term contracts are in high demand, as evidenced by the equity's 30-day at-the-money implied volatility, which has jumped 9.8% to 41.5%. Drilling down, almost all of the call volume is a result of one massive block of 10,000 December 70 calls, which was bought to open for $0.24 apiece, resulting in an initial net debit of $240,000 (number of contracts * premium paid * 100 shares per contract).

This is the most the call buyer stands to lose, should UAL settle south of $70 at the close on Friday, Dec. 19, when front-month options expire. Meanwhile, her gains are theoretically unlimited past the breakeven mark of $70.24 (strike plus premium paid), an area the equity has yet to explore.

Regardless of where United Continental Holdings Inc (NYSE:UAL) closes at December options expiration, this trader can rest easy knowing she purchased her short-term options at a bargain. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 39% ranks in the 14th percentile of its annual range, suggesting premium on UAL's front-month options is pricing in relatively low volatility expectations at the moment.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earning announcements before it's too late!


  
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


Research Exposes Shortcut to Stock Market Wins
A simple way to stop picking losers, and start cashing in like Wall Street's elite.
Spotify Stock Shaky as Amazon Eyes Podcasts
Amazon's interest in podcasts puts SPOT in focus
AZO Shifts Higher After Earnings
AutoZone's fiscal third-quarter results beat estimates
One New Company Looks Ready To Clean Up On China’s Lithium Mess
Click to continue to advertiser's site.