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Put players are pouncing on United Parcel Service, Inc. (NYSE:UPS - 71.68) this morning, with traders seemingly gambling on a post-earnings drop for the shipping stock. Already today, UPS has seen roughly 7,100 puts change hands -- about six times its average intraday put activity. Meanwhile, fewer than 4,300 UPS calls have crossed the tape thus far.
Attracting the most attention has been the November 70 put, which has seen more than 4,200 contracts traded on open interest of fewer than 750 contracts, pointing to an influx of fresh initiations. Plus, the majority of the puts have changed hands at the ask price, suggesting they were bought.
By purchasing the puts to open, the buyers are betting on UPS to breach the $70 marker -- which would mark a year-to-date nadir --within the next few weeks. More specifically, the volume-weighted average price of the puts is $1.16, meaning the buyers will profit if the stock slips below the $68.84 level (strike minus VWAP) within the options' lifetime. However, even if UPS should remain atop the $70 level, the buyers' maximum risk is capped at the initial premium paid for the puts.
Relatively speaking, though, that's quite a hefty premium. Heading into tomorrow morning's earnings release, demand for UPS' front-month options has skyrocketed. In fact, the stock's Schaeffer's Volatility Index (SVI) now sits at 20% -- above 46% of all other readings of the past year.
From a wider sentiment standpoint, though, this morning's appetite for puts runs counter to the growing trend seen on the major options exchanges. During the past two weeks, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly three UPS calls for every put. In fact, the stock's 10-day call/put volume ratio of 2.62 stands higher than 75% of all other readings of the past year, suggesting option buyers have initiated bullish bets over bearish at a much faster clip than usual.
Elsewhere on Wall Street, the brokerage bunch is split when it comes to UPS. Currently, the stock boasts nine "buy" or better endorsements from analysts, compared to 10 "holds" and one "sell" or worse rating. The consensus appears to be growing more bearish, however, in light of UPS' challenges on the charts of late. Following last week's downgrade at Baird, Barclays this morning trimmed its price target on the equity to $79 from $80.
Technically speaking, UPS has underperformed the broader S&P 500 Index (SPX) by eight percentage points during the past three months. Since trading north of $80 in mid-to-late July, the security has surrendered more than 10%, ushered lower beneath its 10-week moving average. Now, the stock is clinging to support in the $70-$72 neighborhood, which served as a foothold during the first half of 2011, and contained UPS' pullback in mid-June.
Historically, UPS has fallen short of analysts' bottom-line earnings estimates in two of the past four quarters, according to Thomson Reuters. Another earnings miss tomorrow could exacerbate recent selling pressure on the shares.