The holiday travel season was good for airlines. The result is elevated expectations for companies like United Continental Holdings, Inc. (NYSE:UAL). However, was the holiday season good enough to offset rising fuel and labor costs?

We’ll find out soon enough, as United Continental will step into the earnings confessional after the close of trading this afternoon. Wall Street is expecting a profit of $1.34 per share for the fourth quarter, down from $1.78 per share last year. Revenue is seen rising 4% to $9.42 billion.

But expectations are much, much lower. According to EarningsWhispers.com, the whisper number rests at just $1.05 per share for the fourth quarter. Furthermore, many analysts have expressed concerns about rising costs for United Continental. Thomson/First call reports that 12 of the 18 analysts following UAL stock rate the shares a “hold” or worse.

If earnings fail to live up to expectations, guidance will surely be a mess. After all, fuel and labor costs aren’t going anywhere but up for the foreseeable future.

And yet, United stock has surged more than 33% since it’s November bottom. The most recent surge has taken UAL stock north of its 200-day moving average. The shares are now within striking distance of their July 2017 highs.

Click to Enlarge However, United stock is also heavily overbought. It’s 14-day RSI comes in at about 76, well above the threshold for overbought activity. As such, United stock is in danger of selling off sharply following tonight’s quarterly report.

Turning to United’s stock options activity, we find a nowhere near enough pessimism heading into tonight’s report. Currently, the February put/call open interest ratio rests at 0.75, with calls outnumbering puts among front-month options. This ratio should be considerably higher given the risks United faces from both labor and fuel costs.

Finally, weekly January 26 series implieds are pricing in a potential post earnings move of about 4.8% for UAL stock. This places the upper bound near $80.70, while the lower bound lies at $73.30.

With the shares heavily overbought, and resistance lying just overhead from United stock’s July highs, the path of least resistance lies to the downside.

2 Trades for United Stock

Put Spread: Traders looking to bet on a reversal in United stock following tonight’s quarterly report might want to consider a Feb $75/$76 bear put spread. At last check, this spread was offered at 33 cents, or $33 per pair of contracts. Breakeven lies at $75.66, while a maximum profit of 66 cents, or $65 per pair of contracts, is possible if United stock closes at or below $75 when February options expire.

Call Sell: If betting directly against United stock isn’t your style, you might consider entering a February $85 strike call sell position. Such a trade is especially useful if you already own United stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $85.

At last check, this option was bid at 38 cents, or $38 per contract. A sold call allows you keep the premium as long as UAL stock closes below $85 at expiration. On the downside, if UAL rallies above $85 prior to expiration, you could be forced to provide 100 shares at current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.