Trade Update – $UPS: Closing Sept Put Fly for a Gain

by Dan September 16, 2014 12:02 pm • Commentary

On the last day of July I took a bearish view on UPS with the thought that the earnings gap at $100 should serve as strong technical resistance with the backdrop of poor fundamentals.  The stock has remained range-bound for the last 6 weeks, and has yet to mount a real challenge to the $100 resistance level, but with 3 1/2 trading days to expiration, and FDX set to report fiscal Q1 results in the morning, I am going to close and take the profit rather than risk the potential for a rally in sympathy with FDX on better than expected results and/or guidance.  After I get a better sense for the implications of FDX on UPS I will revisit the bearish thesis and possibly look to roll the view out a bit, possibly through the holiday season.

Action: UPS ($97.83) Sell to Close Sept 100/95/90 Put Butterfly at 2.25 for an .80 gain




Original Post July 30th, 2014:  New Trade – UPS Failed Delivery

Yesterday, following UPS’s disappointing Q2 results and weak guidance we laid out our bearish thesis (below) but wanted to wait for a little bit of a bounce before we decided to trade as we did not want to “press” an oversold condition.  The stock this morning opened down, made a new low, and has since reversed, now just below the all important 200 day moving average which should serve as an important near term technical level, both resistance if it gets rejected, or support if it is able to retake the level and make a series of closes above it.

At this time though, I am going to define my risk and enter the trade detailed yesterday as I believe a failed bounced here could see the stock re-test the $95 level in the coming weeks:

UPS ytd chart from Bloomberg
UPS ytd chart from Bloomberg
Trade: UPS ($99.45) Bought to Open Sept 100/95/90 Put Butterfly for 1.45

-Bought 1 Sept 100 put for 2.65

-Sold 2 Sept 95 puts at .70 each or 1.40 total

-Bought 1 Sept 90 put for .20

Break-Even on Sept Expiration:

Profits:  btwn 98.55 and 91.45, make up to 3.55 with max gain of 3.55 at 95

Losses: up to 1.45 btwn 98.55 and 100 and btwn 90 and 91.55 with max loss of 1.45 above 100 and below 90

Rationale:  Vol is fairly low, but looking to off set decay in what could be a slow grind lower is attractive from a trading perspective. Also defining my risk in the event the stock has a reason to fill in the earnings gap is also attractive, stopping myself out at 1.5% of the underlying stock price and at a key technical level.

If the stock were to make a series of closes above the 200 day moving avg, I would strongly considering cutting my loses and exiting the trade as a gap fill could be in the cards.