Have you been waiting for some normality to return? Well, so have companies like United Airlines Holdings Inc (Nasdaq: UAL), and option traders appear to be sharing that optimism. The result was UAL finished trading today nearly 7% higher on the session.  The surge came following positive news on the Wall Street Journal (WSJ) showing herd immunity may arrive much sooner than the Federal government is willing to acknowledge.

COVID News

The encouraging news for UAL came in the form of an op-ed written for the WSJ, Johns Hopkins surgeon, Dr. Marty Makary discussed the likelihood of the U.S. reaching herd immunity by April. In the publication, he discussed his outlook as follows:

"There is reason to think the country is racing toward an extremely low level of infection.

As more people have been infected, most of whom have mild or no symptoms, there are fewer Americans left to be infected.

At the current trajectory, I expect Covid will be mostly gone by April, allowing Americans to resume normal life."

The outlook comes following a 77% drop in COVID infections in the past six weeks! After the dark winter of COVID policies, this comes as good news for those wanting more and likely those who have been concerned about the infection rates. Given the fact that the data is estimated to capture only about 10% of actual COVID cases, that data suggests that nearly 55% of the population have natural immunity and about 15% have been vaccinated.

UAL Option Activity

The bullish news and the potential of significant stimulus payments in the works is certainly bullish for markets and relative value stocks like UAL. This is certainly part of the bullish backdrop of today’s rally in UAL and significant option activity.

For the session, option volume was over four times the average. The calls were sizzling at nearly five times the 5-day average volume while puts traded at nearly three times the average. Nearly 40% of calls were traded at the ask and 39% of puts traded at the bid. The result is bullish activity on the call and put side of the ledger. The put-to-call ratio was 0.281 on the session. Here’s a breakdown of the significant activity:

• 6,256 16 APR 21 $45 calls mostly BOT at $5.93 to $6.40 against open interest of 8
• 32,572 18 JUN 21 $50 calls mostly BOT at $5 to $6.20 against open interest of 10,086

While the acfivity was mostly near the money, the potential of some normalization in the industry may help propel stocks like UAL in the near future, the only question is how far do they go?

UAL Technicals

Since the March lows, UAL has been one of the more underperforming stocks in its industry, comparatively. This lends itself to potentially outperform its industry if normalization begins to return, or at least the expectation of normalcy.

(Click on image to enlarge)

Looking at the weekly chart of UAL, the 61.8% retracement level is near $66.50. That level happens to align with the 161.8% projection measured from the initial rally last spring. With the price trading at $48, that provides a reasonable risk-reward in the coming weeks to months.

Conclusion

One look at analyst estimates and you’ll see that stocks like UAL has a lot of flaws. The potential return to normalcy doesn’t necessarily mean significant profitability for these companies. In fact, the 5-year projected EPS growth estimates for all of the major airlines is negative. However, that doesn’t mean that there isn’t potential for a company like UAL to catch up with the industry and normalize its valuation.