Shares of United Airlines Holdings (UAL) have declined 36 percent in the past year amid a dropping market and higher energy costs. One trader sees further downside ahead.
That’s based on the January 2025 $20 puts. With 836 days until expiration, 16,154 contracts traded compared to a prior open interest of 171, for a 94-fold rise in volume on the trade. The buyer of the puts paid $3.11 to make the bearish bet.
Shares of the airliner recently went for about $33, so they’d need to lose $13, or nearly 40 percent of their value, for the options to move in-the-money.
The company is still coming off a post-pandemic bounce, with revenue up 121 percent in the past year. However, the current slowing economy will likely start showing negative year-over-year comparisons, which should act as further pressure on shares.
Action to take: Investors interested in the airline space should avoid it for now, as there’s too much economic overhang for the space at the moment. Investors can likely get a better valuation in the months ahead, making patience pay off here.
For traders, shares are in a downtrend, and this option plays to that theme. For the time remaining on the option, it’s inexpensive, and could deliver mid-double-digit returns in the coming weeks if the market continues to take a bigger hit lower.
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.