Shipping specialist FedEx Corporation (FDX) is scheduled to release its fiscal first-quarter earnings report ahead of the open on Wednesday, Sept. 16. FedEx stock has taken a hit during the past several months, following the broader market lower amid global and Chinese economic concerns.
That said, FedEx stock has proven resilient in the past, and it may offer up some trading opportunities for savvy options traders ahead of the event.
Diving into the numbers, Wall Street is expecting FedEx earnings to rise nearly 17% year over year to $2.45 per share. Revenue, meanwhile, should arrive at $12.3 billion — 5.2% above year-ago levels. Overall, revenue growth has kept pace with the broader global economy, and many investors will be keeping tabs on FedEx as a market bellwether.
Turning toward the sentiment backdrop, analysts have lined up in the bulls’ column ahead of FedEx’s quarterly report. Specifically, EarningsWhisper.com reports that the whisper number for FedEx’s first-quarter report stands at $2.46 per share, a penny better than the consensus.
FedEx Stock Options Overview
Taking a broader view of the analyst community confirms the bullish bias. According to Thomson/First Call, FedEx stock has attracted 17 “buy” ratings, 11 “holds,” and no “sell” ratings. Furthermore, the current 12-month consensus price target of $199 per share projects a healthy gain of about 33% over the next year for FDX.
Turning to the options pits, short-term speculative investors are nowhere near as optimistic when it comes to FDX’s prospects. For the front two months of options, FDX sports a put/call open interest ratio of 0.97, with puts and calls near parity. Furthermore, this ratio rises to 0.99 for the September series, hinting that options traders are either betting on a decline or buying protection against a decline.
That said, the majority of this put open interest is centered at the overhead September $160 strike, where 3,856 contracts reside. The next most populous September put strike is the $155 strike, which sports OI of 1,246 contracts and is also currently trading in the money. In other words, given the lack of out-of-the-money put open interest, the September put/call ratio may be overstating the case for low expectations among options traders.
Click to EnlargeOverall, September option implieds are pricing in a potential post earnings move of about 5.4% for FDX. This places the upper bound at $158.07, while the lower bound lies at $141.93.
By breaking above short-term resistance at $155, a post-earnings rally could bring technical traders and bargain hunters to the table for FDX. On the other hand, a breach of support near $145 could mark the start of another downleg for FedEx stock.
2 Trades for FDX Stock
Call Spread: While FedEx doesn’t have the most impressive fundamental track record in the earnings confessional, I’m not inclined to bet against the shares with the holiday shipping season just around the corner. As such, traders looking to bet bullish on FDX ahead of earnings may want to consider an October $155/$160 bull call spread.
At last check, this spread was offered at $1.90, or $190 per pair of contracts. Breakeven lies at $156.90, while a maximum profit of $3.10, or $310 per pair of contracts, is possible if FDX stock closes at or above $160 when October options expire.
Puts Sell: That said, there are concerns that FedEx stock could remain trapped in its current trading range for the short term. As such, traders with a neutral-to-bullish outlook on FDX’s short term might want to consider a September $141 put sell. At last check, the September 141 put was bid at 61 cents, or $61 per contract.
On the upside, you keep the premium received as long as FedEx stock closes above $141 when September options expire at the end of next week. On the downside, should FDX trade below the sold strike ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $141 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
