Markets

Trader flies with United Continental

United Continental shares have seen a pullback, but one investor isn't giving up hope.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 11,000 March 30 calls for $1.06. A matching number of January 30 calls was sold around the same time for $0.39, pushing total option volume in the airline stock to 6 times greater than average.

Volume was below open interest in the January contracts but not March, so the investor was probably closing one position and rolling to the other. It cost $0.67, but gave them an additional two months to make money.

The timing of the trade was important because the shorter-dated contracts will start losing value at an accelerating pace as expiration approaches on Jan. 21. That means the cost of rolling the position will grow more expensive on a net basis because the investor would get less money back for the options owned. At the same time, the calls that the trader wanted to buy wouldn't lose value as quickly.

UAL rose 2.87 percent to $26.15 yesterday but entered the session with an 8 percent drop since the beginning of the month. Airlines have been rallying hard for most of 2010 as traffic picks up and ticket prices rise, but they have been consolidating their gains for about the last six weeks.

The trade on UAL is also interesting because the investor is betting that the stock will rally past $30--a level it hasn't seen since March 2008 when the entire sector collapsed amid a surge in oil prices. If it breaks that price area now, traders may expect another big rally, which helps explain the choice of options with the 30 strike.

(Chart courtesy of tradeMONSTER)

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

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


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

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