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Can UPS Follow FedEx Higher?

Investors scooped up UPS' August 80 calls

by 6/20/2012 9:04 AM
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The shares of United Parcel Service, Inc. (UPS - 78.16) followed sector peer FedEx (FDX) into the black yesterday, which sparked a flurry of optimistic options trading. By the closing bell, UPS had seen around 15,000 calls change hands -- more than double its average single-session call volume. Meanwhile, fewer than 8,400 UPS puts were exchanged.

Attracting the most attention was the out-of-the-money August 80 call, which accounted for nearly 4,600 of the contracts traded. What's more, a healthy portion of the back-month calls changed hands closer to the ask price, and call open interest at the round-number strike ballooned by 4,184 contracts overnight, hinting at buy-to-open activity. By purchasing the calls to open, the traders are expecting UPS to surmount this round-number strike within the options' lifetime -- which just so happens to encompass UPS' own turn in the earnings spotlight on July 24.

However, calls were already the options of choice among UPS' short-term options crowd, as evidenced by the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.70, which measures contracts expiring within three months. This ratio stands higher than just 34% of all others taken during the past year, suggesting near-term traders are currently more call-biased than usual on the stock.

Before yesterday, though, the sentiment tides in the options pits appeared to be shifting. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.89 UPS puts for every call during the past couple of weeks. In fact, the stock's 10-day put/call volume ratio of 1.89 ranks in the 95th annual percentile, implying that options players have initiated bearish bets over bullish at a rapid-fire rate.

Technically speaking, UPS has muscled significantly higher since bouncing off its 200-day moving average in early June. However, the stock is now attempting to claw its way north of the $78-$79 area, which played the part of support from mid-March to early May, but could now switch roles to act as a short-term speed bump.

Daily Chart of UPS since December 2011 With 200-Day Moving Average


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