United recovery gives bulls a lift

Airlines have been rebounding recently, and today it was United Continental’s turn to reward investors.

Just yesterday, Investitute’s market scanners detected the purchase of 5,800 May $77.50 calls for $0.62 to $0.64 with the stock at $75.43. These were clearly new positions, as open interest in the strike was only 792 contracts before the activity appeared.

This afternoon those calls traded for as much as $2.35, a profit of more than 270 percent only one session later. The stock gained less than 4.6 percent in that same time, underscoring how much options can outperform shares.

Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

UAL was up 4.76 percent today to close at $78.55. Carriers have been recovering from United’s passenger PR disaster from last month, aided by falling oil prices.

Today’s winning trade, which Investitute co-founder Jon “DRJ” Najarian cited on CNBC’s “Halftime Report” today, follows big profits from calls in rival Delta Air Lines last week.

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