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Thursday, August 18, 2022


Options Strategist Positions for a United Continental Rally

Today’s tickers: UAL, HBC, ALTR & GPS

UAL – United Continental Holdings, Inc. – A three-legged options combination play on United Continental suggests one strategist expects the price of the underlying to rebound by June expiration. Shares in UAL are down 2.25% at $20.75 as of 12:05pm in New York trade. The contrarian player is positioning for the medium-term rally by lowering the cost of buying a debit call spread with the sale of out-of-the-money put options. The trader sold 10,000 puts at the June $19 strike, to buy the 10,000-lot June $22/$26 call spread, for which he received a net credit of $0.10 per contract. The investor at least keeps the net credit as long as shares in UAL exceed $19.00 through expiration day. Additional profits are available to the bullish trader in the event that United Continental’s shares reverse course to rally 6.0% over the current price of $20.75 to trade above $22.00 in the next couple of months to expiration. Including the net credit, the investor may pocket maximum potential profits of $4.10 per contract on the transaction if the price of the underlying stock jumps 25.3% to exceed $26.00 at expiration in June.

HBC – HSBC Holdings PLC – It looks like one options investor raised bullish expectations on Europe’s biggest bank this morning with shares in HSBC Holdings currently trading 1.0% higher on the session at $54.44 as of 11:25am. The financial services provider’s shares were higher in European trading as well on sentiment that upcoming results from a government-sponsored Independent Commission on Banking will be less thorny than some investors initially anticipated. The trader responsible for the majority of options volume generated on HBC thus far today appears to be rolling a previously established bullish stance up to the next available strike price in the May contract. It looks like the bullish player originally purchased some 5,000 calls at the May $52.5 strike for an average premium of $1.16 each back on March 31, when shares in HBC were trading around $51.77. The subsequent run up in the price of the underlying lifted premium on the now in-the-money call options, allowing the trader to sell all 5,000 lots this morning at a premium of $2.67 apiece. Net profits on the sale amount to $1.51 per contract, not bad for a one-week return. Next, the options player extended bullish sentiment on the banking services provider, buying 5,000 fresh calls at the May $55 strike for a premium of $1.24 each, on previously existing open interest of just 840 contracts. The trader profits on the new bullish stance if shares in HSBC Holdings rally another 3.3% over the current price of $54.44 to surpass the effective breakeven point to the upside at $56.24 by May expiration.

ALTR – Altera Corp. – Bearish options activity on the semiconductor company this morning indicates one strategist is positioning for the price of Altera’s shares to fall ahead of May expiration, and perhaps following the chipmaker’s earnings report later this month. The San Jose, CA-based company is reports first-quarter earnings after the close of trading on April 26, 2011. Shares in Altera Corp. are currently down 1.15% to stand at $43.00 just after 11:10am in New York. The pessimistic player initiated a debit put spread, buying 3,000 puts at the May $40 strike for an average premium of $0.98 each, and selling the same number of puts at the lower May $35 strike at an average premium of $0.21 apiece. Net premium paid for the transaction amounts to $0.77 per contract. Thus, the put player is poised to profit in the event that ALTR’s shares fall another 8.8% from the current price of $43.00 to breach the effective breakeven point on the spread at $39.23 by May expiration. Maximum potential profits of $4.23 per contract are available to put-spreader if the price of the underlying stock plunges 18.6% to trade below $35.00 at expiration. Altera’s shares have not closed below $35.00 since November 23, 2010, but did dip below the breakeven price of $39.23 as recently as March 15, 2011.

GPS – Gap, Inc. – The retailer of clothing and accessories popped up on our scanners at the start of the session due to near-term bullish activity in April contract call options. Some investors appear to be positioning for a rise in Gap’s shares by expiration in just over one week, despite the 0.90% pullback in the price of the underlying to $22.85 today. Earlier optimism was in line with a brief rally in GPS shares until news of another 7.4-magnitude earthquake in Japan knocked the wind out of a U.S. stock market rally. Traders hoping to see the price of the underlying improve in the near-term traded more than 6,700 calls at the April $24 strike on previously existing open interest of just 557 contracts. It looks like the majority, or around 4,800, of the call options were purchased for an average premium of $0.07 a-pop. Call buyers scooping up relatively cheap upside exposure make money if the retailer’s shares surge 5.3% in the next week to exceed the average breakeven price of $24.07 by expiration day next Friday.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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