Earnings Preview: FedEx Corporation (FDX)

FedEx Corporation (FDX) got some good news ahead of tomorrow night's earnings report

Jun 20, 2016 at 12:08 PM
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FedEx Corporation (NYSE:FDX) is 2.1% higher today at $165.70, as the company prepares to report fiscal fourth-quarter earnings tomorrow evening. Boosting the stock is a report that the U.S. Department of Justice (DoJ) has dropped criminal charges against the firm, in a case centered on shipments from illegal internet pharmacies. Bullish action is heating up in the options pits, as traders react to the news and bet on a repeat of last quarter's post-earnings upside.

Jumping right in, FDX calls are crossing the tape at more than twice their expected intraday rate. Most active by a wide margin is the July 170 call, where it looks like some traders may be purchasing new positions, expecting the shares to break out above the $170 level before the close on Friday, July 15, when the newly front-month option expires. Meanwhile, some speculators are looking for shorter-term and sharper gains, buying to open the weekly 6/24 175-strike call.

Overall, the options market is pricing in a 6.4% single-day post-earnings swing for FDX -- higher than its average one-day move of 4.3% over the past eight quarters. It's hard to blame traders for being extra optimistic this time around, after the most recent quarter in which the stock soared 11.8% in the session following its earnings report.

Stepping back, today's bullish outlook has not been the norm for FDX in recent weeks. In fact, the stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the bearishly skewed 94th annual percentile, at 1.15. Even more convincing, FDX has a Schaeffer's put/call open interest ratio (SOIR) of 1.92, indicating puts nearly double calls among options set to expire in the next three months. Plus, this ratio sits just 8 percentage points from a 12-month peak.

Pessimism has been building outside of the options pits, as well. Though short interest accounts for only 1.4% of FDX's available float, these bearish bets increased by more than 30% during the two most recent reporting periods.

From a technical standpoint, FDX hasn't been much to write home about for the past few months. Today's breakout to $165 could be crucial, though -- this level has alternated as both resistance and support since March, and also shut down a rally last November. Should tomorrow's earnings news give FedEx Corporation (NYSE:FDX) the boost call buyers are hoping for, the shares could finally put this level in the rearview mirror.

FDX Daily Chart June 20

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