Options Traders Double Their Money in 4 Days on United Stock

Airline stock United Continental presented a compelling opportunity for a quick options trade

Jun 12, 2017 at 10:01 AM
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Subscribers to Schaeffer's Weekly Options Countdown service recently saw a 100% profit thanks to United Continental Holdings Inc (NYSE:UAL) weekly 6/9 72-strike calls. Below, we'll break down what attracted us to UAL stock, and how the options trade unfolded. 

We recommended the United call option over the Memorial Day weekend, when the shares had just broken north of the round $80 level to hit fresh record highs. As such, UAL was flirting with a nearly 12% year-to-date lead, and things also appeared strong on the fundamental front, with the company recently posting stronger-than-expected passenger travel data. We also took note of falling oil prices, which is often a boon for the airline sector. 

Despite this, options traders were showing a strong preference for puts over calls. Specifically, the stock had a 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) standing above 75% of all readings from the past year at the time.

Plus, it appeared to be an opportune time to buy short-term options. UAL had a Schaeffer's Volatility Index (SVI) of 28% -- just 9 percentage points from an annual low -- and a Schaeffer's Volatility Scorecard (SVS) of 80. Taken together, this suggested that not only were near-term options pricing in unusually low volatility expectations at the time, but United had shown a tendency to make bigger-than-expected moves on the charts over the past year, compared to what the options market had priced in. 

Following a brief pullback, United stock notched a three-session win streak, culminating in a jump to fresh record highs on June 2. Amid this rally, we closed our position, allowing options traders to double their money in just four days. 

ual stock chart june 12


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