Air carrier
United Airlines Holdings (UAL) has been trending higher since October. One trader sees shares hitting an air pocket over the summer.
That’s based on the September $46 puts. With 106 days until expiration, 47,599 contracts traded compared to a prior open interest of 306, for a massive 156-fold rise in volume on the trade. The buyer of the puts paid $1.74 to make the bearish bet.
UAL recently traded for about $52, so shares would need to drop by $6, or about 11.5%, for the option to move in-the-money.
UAL trades closer to its 52-week high of $58.23 than the low of $33.68.
But the price movements over the past few weeks appears to be forming a bearish head-and-shoulders pattern. That suggests some downside ahead, with the next support potentially in the low-$40 range.
Action to take: Shares have had a considerable runup in the past few months and appear to be taking a breather.
The head-and-shoulders pattern is a fairly reliable and consistent one, so interested traders should wait for a pullback before buying.
For traders, the September $46 puts are well positioned for any downside in the coming weeks, even out over the next few months.
Traders can likely nab mid-double-digit returns or better depending on the severity of the drop.
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 company mentioned in this article.