FDX reports Wednesday June 22nd at 8am.
-options market is implying about a 3.75% move vs the 4 qtr average move of about 4%
-Stock is down about 7% ytd and all of the weakness comes in this month alone.
-analyst community overwhelmingly positive on the name with 22 Buys, 7 holds and only 1 Sell.
-Implied vol looks reasonable with 1 month at them money offered at about 27 vs the 90 day realized vol of about 25.
-Technically stock has held $85 since gapping above that level in Aug 2010, if it breaks you will see a quick move to 80…..that said, with crude coming in well below 100 for the first time since February, lower input costs could offset any expected declines in demand associated with a slowing economy.
2 trades I am Considering: I want to either BUY the IMPLIED MOVE or Lean on it FROM THE SHORT SIDE……
TRADE 1: FDX ($86.46) Buy the July 85/90 Strangle for 3.30
-Buy July 85 Put for 2.10
-Buy July 90 Call for 1.20
Break-Even On July Expiration:
Upside: stock btwn 90 and and93.30 lose up to 3.30, stock above 93.30 have unlimited upside.
Downside: stock btwn 81.70 and 85 lose up to 3.30, stock below 81.70 have unlimited gains to zero.
Worst Case: stock btwn 90 and 85 and you lose all 3.30…..
TRADE RATIONALE: move looks priced kind of cheap, given the volatility in the market the likelihood of losing all the premium in this trade is not great. I think the market is likely to stay volatile over the next few weeks and as the Put strike is closer to spot I am obviously leaning to the downside…..I think there are plenty of potential catalysts for stock either way and as the earnings event comes in the first month of expiration you will have plenty of time to earn this out……again this is a low probability play, but if you think a name like FDX could be negatively impacted by slowing global growth and their guidance and commentary on their call next week could reflect this, than this could be a good way to play.
OR
TRADE 2: FDX ($86.46) Buy the July 85/80 Put Spread for 1.30
-Buy July 85 Put for 2.05
-Sell July 80 Put at .75
Break-Even on July Expiration:
Upside: btwn 83.70 and 85 lose up to 1.30, above 85 lose 1.30
Downside: btwn 83.70 and 80 make up to 3.70, below 80 make full 3.70.