How Options Traders Tripled Their Money In 2 Days Off Sinking UPS Stock

There was plenty of resistance sitting just above UPS shares

by Patrick Martin

Published on Dec 6, 2018 at 2:42 PM

Subscribers to our Weekly Options Countdown service recently tripled their money with the United Parcel Service, Inc. (NYSE:UPS) weekly 12/7 117-strike put. We'll take a closer look at what initially put UPS stock on our bearish radar, and how the winning options trade unfolded.

When we entered the position on Monday, Dec. 3, the shipping stock had been lagging below its year-to-date breakeven point in recent weeks. Back in late October, the shares gapped lower in the wake of a disappointing quarterly report. While the stock had engaged in a mini-rally since then, there were signs indicating firm resistance was in place.

For one, the rally lost steam near the $115 region, home to a 50% Fibonacci retracement of the stock's September highs and October lows. This area also coincided with the shares' 160-day moving average. There was also options-related resistance in place, thanks to peak open interest at the December 115 strike.

What's more, UPS stock had been a strong performer for premium buyers over the past year, based on its Schaeffer's Volatility Scorecard (SVS) of 96 out of 100. In other words, UPS had shown a tendency to make bigger-than-expected moves during the past 12 months, relative to what its options have priced in.

After our put recommendation, United Parcel Service stock was turned away resistance, and promptly gapped lower. This was aided by an analyst note from Morgan Stanley noting "the market is missing the risk Amazon Air poses" to FedEx and UPS (UPS). UPS stock closed at $106.77 on Tuesday, Dec. 4, allowing our subscribers to lock in a 200% profit in just two days.

Trade PM UPS

 

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