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Options traders bet on more pain for the airlines when United reports earnings

Options traders bet on more turbulence when United Airlines reports earnings

Options traders aren't optimistic that United Airlines will be able to do anything to turn around what has been a disastrous year for airline stocks when it report earnings after the bell Tuesday. 

The stock has already fallen more than 63% this year, and it dropped about 10% after the company reported a loss of nearly $2 billion during the first quarter of 2020. But the options market is betting that the stock will need to pass through even more turbulence before its performance turns around.

"The options market, right now, is implying a move of about 10% by the end of the week. That's much higher than the 6.2% or so that the stock has averaged over the last eight quarters," Optimize Advisors CIO Michael Khouw said Monday on "Fast Money."

As Khouw would go on to point out, four of the five most active United contracts in Monday's trading were puts, meaning that the market is leaning toward the bearish side of that implied move.

"Where we saw a lot of that opening activity was in the [July 31 monthly] 31-strike puts," said Khouw. "So buyers of those puts are obviously betting on further weakness for United into the end of the month."

Those puts break even at about $29.64, or more than 8% below where United closed Thursday's session, meaning that buyers of these contracts will profit even if the stock doesn't quite remain below that 10% implied move from now until expiration. 

United was trading 3% higher in Tuesday's session.