Those polygons are referred to as concave hulls . One implementation exists based on Bruce Harolds Concave Hull Estimator
Other hulls like convex hulls are easier to generate and can be done with existing ArcMap tools or external tools like Bounding Containers
Aggregate points is a similar option and possibility
Can we not simply use the Buffer tool with the dissolve option for the selected points? I am just thinking of a more simplified approach, most likely not the right way to go about this.
The problem with a simple buffer, is that it would only be useful if the Interpoint spacing were uniform to prevent the possibility of holes developing within the resultant during the dissolve process.
Convex hull generation would be the optimum, but often a concave hull will suffice if the perceived exterior bounds are not too tortuous.