Schaeffer's 43rd Anniversary Stock Picks in 2024

FedEx Corporation (FDX) Options Traders Prepare for Post-Earnings Downside

FedEx Corporation (NYSE:FDX) shareholders may be hedging with put options ahead of earnings

Dec 16, 2016 at 11:18 AM
facebook X logo linkedin

Package delivery expert FedEx Corporation (NYSE:FDX) has been terrific on the charts in 2016. Shares of FDX are up 31.8% year-to-date, touching an all-time high of $201.57 earlier this week, and were last seen at $196.41. The stock is looking to build off this strong performance -- and shrug off negative news reports -- during the holiday season, especially with today being "Free Shipping Day." Not only that, but bullish analyst attention and an upcoming earnings report make FDX stock worth watching in the weeks ahead. 

Cowen and Company just last night boosted its price target on FedEx to $240 from $180. This means the brokerage firm is expecting a roughly 22% gain from the stock. Any additional gains, possibly sparked by a strong earnings report next week, could bring forth more bullish notes, too. While 10 analysts rate FDX stock a "strong buy," six others sit on the fence with tepid "hold" ratings. 

As alluded to, the shipping company is scheduled to report earnings after the close next Tuesday. Looking back, FDX shares have gained in the session after an earnings release in three of the past four quarters, including a 2% upside move last December. The options market is pricing in a nearly 7% swing in either direction for Wednesday's session, which is essentially identical to the stock's post-earnings move last quarter, when it jumped 6.9%. 

Still, a closer look at the options data shows a preference for puts over calls. For starters, put buying has been more popular than call buying during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), with a put/call volume ratio of 1.27 -- in the top third of all readings from the last year. Plus, FDX's Schaeffer's put/call open interest ratio (SOIR) sits at 2.61. Not only does this reading show put open interest more than doubles call open interest among options expiring within three months, but it also ranks in the 97th annual percentile, suggesting such a put skew is highly unusual. 

Of course, given FDX's impressive gains this year, this activity may not be exactly bearish. Specifically, it's likely some of this focus on puts can be attributed to shareholders locking in paper profits and protecting themselves from a possible post-earnings drop. Legitimizing this theory is the fact that some of the largest increases in put open interest in the standard soon-to-be front-month January series during the past five days have occurred at strikes that are far out of the money. 

FDX Open Interest Dec 16_

There are two reasons bullish FedEx Corporation (NYSE:FDX) traders may show concern, though. The stock's boom up the charts has left it with a 14-day Relative Strength Index (RSI) of 70, meaning the shares have technically been overbought, and could be due for a pullback -- which is occurring today, with FDX last seen 0.8% lower. Also, it's also possible the round $200 level could act as resistance, especially since the shares failed to hold above this mark earlier in the week. 

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

A.I.’s Dirty Little Secret: The Real Power Behind The AI. Boom ✨

Anyone who’s seen the The Matrix movies knows that A.I. needs power.  Lots and lots of power.

If you’ve seen the movie, you also know the grizzly results of the ensuing battle for that power.

Now, Wall Street’s battle for A.I. power won’t go to such extremes. Hopefully?

A.I. needs more power and that means more opportunities for stock traders in the know.

Download your free copy of “The A.I. Revolution: 4 Stocks to Buy Now”!