Time To Buy United Puts (UAUA, DAL, LUV)

Shares of United Airlines (NASDAQ: UAUA) are up more than 15% on the day to $15.15. This sharp move higher comes after the company announced better air traffic in January at the close of trading yesterday. However, given today's recent strength, I am buying put options in United as I believe it may be in for a significant pullback.

Shares of airline stocks have been on a tear for the last three months. Delta Air Lines (NYSE: DAL) is up 56.78% during that time while Southwest Airlines (NYSE: LUV) is up 29.08%. However, shares of United have soared 113.71% over the last 90 days. Given such an extreme outperformance, the risk/reward is to the downside with United as it may give back a large portion of its gains to fall in line with its peers.

Contributing to the parabolic move in United Airlines may be the stock's heavy short interest. Over 24% of the float is shorted, compared with 4.5% of the float for Delta and 3.5% for Southwest.

While the travel industry is definitely improving as the economy moves out of recession, much of this recovery has already been discounted in the share prices of airline stocks. United is a volatile stock and I would look for it to retrace a decent amount of its gains. If one wants to use Fibonacci levels, look for a 38.2% retracement from its high of $15.16 back to $11.93. Instead of shorting the stock outright, look at March 12.5 and 14.0 puts, which have been absolutely crushed on today's move. The March 14.0 put contract currently trades at $1.32, down some 44% from $2.39 yesterday.