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

by Alex Eppstein

Published on Dec 11, 2015 at 12:27 PM
Updated on Jun 24, 2020 at 10:16 AM

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.

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