UAL Fades As Fiscal Stimulus Trumped By COVID Concern

UAL Unusual Option Activity

What will 2021 bring for the travel industry and especially the airline industry and especially United Airlines Holdings Inc (Nasdaq: UAL)? There are the transitory factors like COVID-19, but there is also the potential for more permanent changes in how people travel. For example, will business travel return to pre-COVID levels? It’s not only a good chance it won’t but a very good chance. As investors weigh the stimulus benefits for airlines and their future, option traders are making some big bearish bets as I write.

The initial reaction following the stimulus news was a rally off the lows of Monday’s session for airline stocks. The modicum of bullish interest extended into the open today but quickly faded. As the bullish hopes faded, the bears in the option market began to move in.

UAL Option Activity

The put option volume on UAL was sizzling today at nearly three times the average and over 48,000 contracts traded. Call option volume finished below average and the overall option volume was about 1.5 times the average. Over 48% of the put volume was filled at the ask price, which is an indication of option buying. Here’s a breakdown of the significant activity:

  • 10,044 15 JAN 21 $35 puts mostly BOT in 1 print @ $0.33 to $0.38

The open interest of that contract is 3,494 and shows long put trades being open. Those trades are for an expiration that has 24 days left and a strike price that is over $8 out-of-the-money. That trade has a notional value of over $381,000 that is expecting an 18% move.

UAL Technical Analysis

In a previous post I outlined the expected retest of the $40 support level near the 61.8% retracement level. The price has now fallen most of the way to that target, but today’s option activity begins to open up another region below that historical support.

The $35 strike price would indicate the potential of falling below the $40 support level to the bottom of the channel in August and September near $32. That would mean a 100% retracement of the November rally.

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