Airline Unusual Option Activity Report

There’s nothing worse than having your airline flight canceled during the holidays. You’re at the terminal and ready to board amidst falling snow, and then the call comes…flight canceled. There are many movies that start out that way as stranded passengers scramble to find their way home. Luckily for you, you’re not in an airport, nothing is keeping you from your family except COVID policies and you can potentially benefit by being grounded.

In this case, the grounding is the bullish trend in airlines coming to a halt. While there’s no crystal ball, there is some sizeable activity taking a bearish stance on airlines today.

Airline Option Activity

One of the things that excites me most about UOA activity is when there is a theme, and today’s theme is airline stocks. Seeing more breadth to the activity shows more of a rotation into or out of a particular industry. So far this morning, there are two stocks, in particular, showing some bearish interest: United Airlines Holdings Inc (Nasdaq: UAL) and American Airlines Group Inc (Nasdaq: AAL). Here’s the activity for these stocks:

• AAL— 11,783 18 DEC 20 $17.50 put BOT @ $0.67 in one print
• UAL— 9,792 18 DEC 20 $45 put BOT @ $0.60 in one print

Ideally, you like to see the price confirm the activity, and for United Airlines that is the case with over a 1% decline today. However, many times the activity will setup prior to the decline or advance, and continue to build interest as the price begins to confirm direction.

Airline Technicals

The price of both airline stocks are fairly extended as the price has rallied strongly since early November. These stocks have been fairly heavily shorted and there has been a definite short squeeze trend. That is something I posted about a couple of weeks ago. All squeezes come to an end sometime and this may be an early indication.

Looking at the chart of AAL, a 61.8% retracement of the recent uptrend is near $13.70. That would have the price testing its $14 breakout level, which is fairly common.

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Looking at the chart of UAL, a 61.8% retracement of the recent uptrend is near $39.50. That would have the price testing its $40 breakout level.

(Click on image to enlarge)

Conclusion

As the holiday season is in full swing, in a COVID-dominated world that may not mean the same thing as it has in past years for the airline industry. This is an unusual period and thinking that these stocks may find themselves retracing seems to be a reasonable assumption. So, if you’re looking for that bearish “stocking stuffer” in your trading account, maybe this is it.