Breaking Down a Massively Profitable Union Pacific Call Trade

The long UNP position was opened in October and fully closed in February

Feb 22, 2018 at 1:20 PM
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Subscribers to our PowerTrend trading service recently tripled their money with Union Pacific Corporation (NYSE:UNP) February 110 calls. We're going to take a look back to see why we were initially bullish on UNP when we recommended the calls in October, and how the options trade unfolded.

We entered our bullish UNP position back in late October, when the shares were trading near $115 following an impressive turn in the earnings booth. The transportation issue had been enjoying a multi-year uptrend on the charts, and sported a one-year return of 24% at the time. The shares had just cleared long-time congestion at the $110 level, and bounced from this price point several times in the weeks leading up to our recommendation -- not to mention this area also coincided with the closely watched 50- and 200-day moving averages. All told, it seemed likely a new level of technical support was in place.

This promising chart outlook was seemingly being overlooked by analysts. In fact, the majority of the brokerage firms tracking Union Pacific had just "hold" ratings in place. As such, a round of positive analyst attention looked like a strong possibility, especially since the company just reported a strong quarter. We also noted that UNP had a short-interest ratio of 4.4  days to cover at the time, showing a healthy amount of sideline cash that could come in and lift the shares.

As expected, a number of bullish notes from analysts came pouring through in the weeks after we entered the call trade, and short interest declined notably as shorts threw in the towel. We closed half our position back on Dec. 20, and subsequently closed the final half on Feb. 16, allowing options traders to more than triple their money.

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