Come Fly With Me?

I can't think of a worst industry than the airlines. The group flies on paper thin margins, subject to the ebbs and flows of the price of oil and huge capital expenditures. Even in good times, these guys have trouble making money, leaving the sector more or less uninvestable.

So then what to make of the decidedly bullish options activity today? One investor sold 2000 of Continental's July 9-Strike puts, more of less willing to buy the stock at a nine handle. In a separate trade, 3000 of AMR's August 6-Strike calls were bought.

"The options market is suggesting we have reached a bottom," said O/A star and Cantor's director of equity derivatives Mike Khouw.

The bullish activity flies in the face of what has been another brutal year for the industry, which now faces higher oil costs and an MIA business traveler. In fact just yesterday, the International Air Transport Association, an industry trade group, doubled its full year loss estimate for the airline sector.

And yet, airline stocks are up today, this in spite of the massive rally in oil, which quietly broke through $70. But some industry watchers feel the rise in oil, at least in the short-term, may not be such a bad omen for the legacy carriers.

"Commodity prices are reflecting the hopes that the economy has turned the corner," said Hunter Keay, transportation analysts for Stifel Nicolaus. "And we need to see a recovery in the economy before we can see a return of the all-important business traveler," Keay added.

Also providing some tailwinds for the sector: the crack spread, or the difference between the cost of oil and refined jet fuel. While oil has taken off, jet prices remain in a holding pattern of sorts. "Crack spreads are about a third of where there were last year," Keay said, "So oil is very manageable here."

Still, with airlines showing little pricing power, investors could be in for a turbulent ride.

"When you look at the sector, the math really doesn't work," said Khouw.

Questions, comments send them to us at: optionsaction@cnbc.com

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