Market Insights

United Airlines hit turbulence as geopolitical tensions rose this month, but options traders could be staying on board.

Check out this unusual activity yesterday in the Chicago-based carrier:

• About 10,000 July 90 calls were sold, mostly for $0.48.
• A marching number of August 90 calls were purchased at the same time, mostly for $1.27.
• Volume was below open interest in the July contracts, but not the Augusts. That suggests an existing long position was rolled forward in time.

Calls fix the price where investors can purchase a security. They can appreciate in value when shares rise or expire worthless if a stock doesn’t move.

Monday’s trader likely entered the session owning the July 90 calls, looking for the stock to move higher. He or she might have worried that time decay would erode the value of their options, so they paid a net $0.79 for an additional month of upside exposure.

United Airlines (UAL), daily chart, with select patterns and indicators.

UAL rose 3.7 percent to $77.04 yesterday. The stock fell sharply as conflict between Israel and Iran resulted in canceled flights and higher fuel costs. However earnings and revenue beat estimates last quarter.

Monday’s option trade was potentially a reaction to events in the Middle East after the U.S. bombed Iran and Tehran retaliated with a non-lethal strike on a U.S. base. If that exchange represents an end to hostilities, it could potentially boost air travel. Crude oil prices also fell sharply, which may confirm that outcome.

Chart watchers may additionally notice that UAL made a lower low and higher high relative to its previous session. That kind of positive “outside day” is a potentially bullish reversal pattern.

Overall option volume in UAL was more than twice the daily average in the last month, according to TradeStation data. Calls accounted for 65 percent of the total.

Options trading is not suitable for all investors. Your TradeStation Securities’ account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. See www.TradeStation.com/DisclosureOptions. Visit www.TradeStation.com/Pricing for full details on the costs and fees associated with options.

Margin trading involves risks, and it is important that you fully understand those risks before trading on margin. The Margin Disclosure Statement outlines many of those risks, including that you can lose more funds than you deposit in your margin account; your brokerage firm can force the sale of securities in your account; your brokerage firm can sell your securities without contacting you; and you are not entitled to an extension of time on a margin call. Review the Margin Disclosure Statement at www.TradeStation.com/DisclosureMargin.