FedEx Stock: Earn Triple Digits on an FDX Breakdown

Advertisement

Friday’s bear raid was particularly damaging to FedEx (FDX). The transportation kingpin took it on the chin, with FedEx shares dropping just under 3%.

With the downturn, FedEx stock has now returned to the lower end of its trading range and remains a pebble toss away from staging another breakdown. Buyers better step up quickly here or else another plunge could be in order.

FedEx is sporting some serious relative weakness these days. The S&P 500 has actually recovered relatively well from its China-induced plunge, but FDX has been struggling. The FedEx stock price remains well below its declining 50- and 200-day moving averages.

Worse yet, its decline has gone on long enough to turn the 200-day moving average lower, which is saying something.

The ongoing underperformance can be seen in the lower panel of the accompanying price chart which shows the comparative relative strength study. The relative strength line recently descended to a new 52-week low.

FedEx stock chart FDX
Click to Enlarge
Source: OptionsAnalytix

Further crippling FedEx stock’s recovery chances are the growing number of distribution days plaguing its chart. These high-volume down days suggest some major sellers are parting with their shares.

A Trade on FedEx Stock

While the action in FDX appears ominous, it’s important to wait for confirmation before pulling the trigger on bearish trades. I suggest using a break below $144.50 before initiating the following option spread.

If the breach occurs, consider buying the Nov $145/$140 put spread for around $1.80. The spread is well positioned to deliver hefty profits should FedEx stock price continued falling.

The risk is limited to the initial $1.80 debit and will be lost if FDX remains above $145 at expiration. The reward is limited to the distance between strikes minus the net debit, or $3.20, and will be captured if FedEx stock can drop below $140 by expiration.

By risking $180 to capture $320 in profits, the put vertical spreads offers a potential 177% return on your money.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

More From InvestorPlace

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/fdx-fedex-stock-brink/.

©2024 InvestorPlace Media, LLC