Airliner United Airlines Holdings (UAL) is up about 17 percent over the past year, performing slightly better than the market. One trader sees shares trending lower in the coming months.
That’s based on the December $41 puts. With 87 days until expiration, 8,565 contracts traded compared to a prior open interest of 141, for a 61-fold rise in volume on the trade. The buyer of the puts paid $1.31 to make the bullish bet.
Shares recently traded for about $45, so the stock would need to drop $4, or just under 10 percent, for the option to move in-the-money. That’s still well over United’s 52-week low of $31.58.
The airline looks inexpensive at less than 4 times forward earnings, and trading at just 0.3 times its price to sales. However, profit margins are slim, and rising fuel costs and the potential for a decline in demand after the holiday season could weigh on profitability in the coming quarters.
Action to take: Investors may like shares on a drop to the low $40 range or lower. Shares are under pressure at current prices and look likely to trend lower. At present, United doesn’t pay a dividend.
For traders, the December puts could see mid-double-digit returns before expiration. Traders should look to take quick profits on a big down day for shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.