Bearish put buying out of the gate in UAL (NASDAQ: UAUA)

UAL Corp. (NASDAQ: UAUA) did not announce any news today, but at least one investor bet on a potential slide in the airline name by buying near-the-money puts.

By 10:50 a.m. EST, nearly 25,000 March 15 puts had already traded today versus current open interest of 8,900 contracts, indicating the majority of the options traded to open. We saw several blocks go off out of the gate, thanks to investors who bought the puts closer to an ask price of $1.12 per contract expressing bearishness in UAUA. This means investors who bought the puts will make money if UAUA shares drop at least 11% throughout the next 31 days before March options expiration.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

These puts have an implied volatility of 76, compared to a 63-day historical volatility of 68%. A look at the at-the-money March 16 straddle, currently priced at $2.84, also suggests investors are loading up on UAUA implied volatility. The same straddle closed on Feb. 11 at $2.62, and heavy option buying action has pushed up the price of that straddle by roughly 22 cents. Another measure of just how extreme the put buying is today is the fact that with the stock down about 19 cents, these puts are up 19 cents. These options are moving dollar-for-dollar with the stock, despite a delta of less than 40%.

UAUA shares reached a new high of 52-week high of $16.34 earlier this morning, but are currently down 1.3%, or roughly 21 cents, to $15.75. These recent highs in the stock could be a reason we’re seeing heavy put-buying action this morning, as investors brace for a potential near-term pullback in the stock.

For more ONN.tv commentary on UAUA:

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