Airlines Ready for Takeoff, Bulls Think

by: optionMONSTER

By David Russell

The bulls are piling into airlines such as United (UAUA) and Continental (NYSE:CAL), betting on an improved outlook for one of the most treacherous industries in the market.

Call volume in the sector exceeded puts by almost 4 to 1 yesterday, according to optionMONSTER's Heat Seeker tracking program. That was the most bullish ratio for any industry group that traded at least 10,000 contracts in the session.

UAUA Chart

UAUA was the most active name, receiving heavy demand for the January 9 calls. The options traded for 11,556 times for $0.30 to $0.45 against open interest of 3,902 contracts. UAUA, which began yesterday down 21 percent in the previous two months, rallied 7.03 percent to $7.76.

The airline sector as measured by the Claymore/NYSE Arca Airline (NYSEARCA:FAA) exchange-traded fund is up 12 percent in the last month, more than twice the level of the S&P 500 index.

The industry is clawing their way back after years of downsizing and finding new sources of revenue, such as baggage fees. Investors are also betting that a stronger economy will restore demand for business travel. Another bullish factor for airlines is that apparent inability of crude oil to climb above $80, which will prevent a spike in jet-fuel prices.

Other stocks that enjoyed bullish activity included American (NASDAQ:AMR), Continental Airlines (CAL), and Delta (NYSE:DAL), though volume was below open interest in most of the contracts that traded.

Overall in the sector, options volume was 51 percent greater than average, while total activity in the options market was about 18 percent below normal. The nature of the trading was also positive in the group, with much more call buying than selling. The opposite was true for puts, which faced selling pressure, according to optionMONSTER data.

(Chart courtesy of tradeMONSTER)