Cautious strategy in United Continental

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United Continental is surging today, but one investor is worried it may come back to earth.

optionMONSTER's Depth Charge tracking system detected the purchase of 5,000 March 29 puts for $0.10 and the sale of an equal number of March 28 puts for $0.04. Volume was more than triple the previous open interest at each strike, clearly indicating that this is new activity.

The trade cost just $0.06 and is highly leveraged to a quick drop in the share price, earning a profit of 1,566 percent on a move to $28 by the end of next week. (See our Education section for more on the strategy, which is known as a bearish put spread .)

UAL is up 6.55 percent to $31.55 in afternoon trading and has risen 59 percent in the last six months. Airlines have been among the strongest industry groups on our researchLAB market analyzer in the same period as the sector has driven the Dow Jones Transportation Average to record levels.

Today's spread appears to be cheap insurance by a trader who is apparently thinking that the stock could near a top and may be ready to pull back. Unlike short selling, the only risk of loss is the $0.06 initial outlay.

Total option volume in the name is already quadruple its daily average so far in the session, according to the Depth Charge.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: UAL

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