United Parcel Service, Inc. (UPS) and the $1.4M Options Bet

Reports that United Parcel Service, Inc. (UPS) can't keep up with holiday shipping demands are hurting the stock

Dec 11, 2015 at 12:27 PM
facebook twitter linkedin

With more and more consumers turning to e-tailers for their holiday shopping needs, the demand for shipping services has never been greater. According to The Wall Street Journal, though, United Parcel Service, Inc. (NYSE:UPS) is struggling to keep up with the volume, resulting in a drop in on-time delivery rates. The news is taking a toll on the stock, but at least one option trader foresees upside on the horizon.

On the charts, UPS has gapped 2.6% lower to trade at $97.85. Longer term, it's been a rough year for the shares, which have surrendered 12% of their value, and are now sitting south of their 200-day moving average and the century mark for the first time since early October.

Yet, UPS call volume is running at a breakneck rate. Currently, more than 31,000 calls are on the tape -- 12 times the usual intraday clip, and on pace for the 99th percentile of its annual range. This heightened demand is reflected in the stock's 30-day at-the-money implied volatility, which has soared 15.8% to 20.8%.

According to Trade-Alert, one trader likely initiated a hefty bull call spread at the January 2016 100- and 105-strike calls, for roughly $1.4 million (10,000 contracts per spread x 100 shares per contract x $1.40 net debit). That, or he rolled his position down. In any case, the speculator clearly has confidence UPS will muscle its way back into triple-digit territory by January expiration.

Longer term, though, option bears have been more prevalent. United Parcel Services, Inc. (NYSE:UPS) sports a 10-day put/call volume ratio of 1.16 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits above four-fifths of similar readings taken in the past year.

Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!