Options Bulls Flock To FedEx Stock Ahead Of Earnings

FDX reports earnings after the close today

Managing Editor
Mar 20, 2018 at 12:10 PM
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FedEx Corporation (NYSE:FDX) is all over the news today after a package exploded at the San Antonio FedEx facility, possibly in connection with other serial bombings in Austin, Texas. In addition, the company announced it will add 500 new locations in Walmart stores over the next two years. In addition to this flurry of news, FedEx is also slated to report fiscal third-quarter earnings after the close today. 

FDX stock has had a positive earnings reaction in each of the past four quarters, and over the last eight quarters, has averaged a 4.5% move the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 5.7% one-day move, per Trade-Alert's implied volatility (IV) data.

Looking at the charts, FDX shares hit a record high of $274.56 on Jan. 18, before pulling back to their 120-day moving average. Since then, the stock's rally attempts have been contained by the $255 level -- an area that notably marked a post-earnings high back in December, and currently hosts the equity's 50-day moving average. At last check, the stock was up 1% to trade at $252.16, bringing its year-over-year gain north of 31%. 

FDX Chart

Analysts are in the bullish camp ahead of earnings. Exactly 85% of brokerages covering FDX rate it a "buy" or better, and the stock's average 12-month price target of $285 -- well north of the equity's January high -- represents expected upside of 13% to its current perch.

In the options pits, speculative players have bought to open calls over puts at a faster-than-usual pace ahead of FDX earnings. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio is 2.02, which registers in the 91st percentile of its annual range.

Digging deeper, the April 260 call has seen a notable increase in open interest during this time frame. ISE/CBOE/PHLX data shows significant buy-to-open activity at this strike, indicating options traders are banking on a breakout from FedEx stock in the coming month. 

Meanwhile, short interest rose by 6.1% in the latest reporting period, but still only accounts for 1.6% of the stock's available float -- or a little less than three times FDX's average daily trading volume.

With the shares docked below recently stubborn resistance, and quite a bit of optimism already priced in by options traders and analysts, FedEx stock could struggle to find meaningful upside in the immediate wake of tonight's earnings report.

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