Earnings Preview: FedEx Corporation (FDX)

Option players are preparing for a post-earnings pullback from shipping stock FedEx Corporation (NYSE:FDX)

Sep 16, 2016 at 1:27 PM
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Delivery stock FedEx Corporation (NYSE:FDX) is set to deliver its earnings next Tuesday night, and FDX option bears are preparing for a post-earnings plunge. However, the stock has a few potential layers of support underneath that could curb selling.

FDX has managed to recover 11% since its January lows, supported by a trendline connecting a series of higher lows. The shares -- last seen at $158.85 -- have also been supported by the $158 region since a mid-March bull gap, with the exception of a June dip, though FDX's upward momentum has run into resistance near the $168-$169 area.

In addition, FDX's 160-day moving average is quickly approaching from below. According to Schaeffer's Senior Quantitative Analyst Rocky White, the four other times this pullback signal has occurred, FDX has gone on to average a 21-day gain of 3.8%, with returns being positive 75% of the time. 

FDX 091616

For FDX option players, puts rule the roost, with FDX's put open interest in the 98th percentile of its annual range. FDX's Schaeffer's put/call open interest ratio (SOIR) of 2.39 sits in the 100th percentile of its annual range, showing near-term option players haven't been more put-skewed in the past 12 months.

In addition, the stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 4.71 shows almost five puts bought to open for every call during the past two weeks, a number that sits higher than 99% of all other readings from the past year.

Drilling down, all 10 of FDX's top 10 open interest positions currently sit out of the money, led by FDX's January 100 put, October 110 put, and September 100 put. In order for these positions to become profitable, FDX would need to fall by 30%-37% from its current perch to touch a three-year low.

Historically, FDX has averaged a one-day post-earnings move of 4.1%, finishing lower five of the past eight quarters. This time around, a 5.3% swing is expected, per the stock's near-term implied volatility, regardless of direction. However, FDX's Schaeffer's Volatility Scorecard (SVS) sits at a relatively high 86, indicating FDX has tended to exceed option players' volatility expectations over the past year.

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