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Today, we’re opening a new bearish trade on United Parcel Service (UPS). We have recently talked about how bullish the market has been and that we are looking to remain overweight bullish in our portfolio, but the stellar “dead cat bounce” that is shaping up on UPS is just too good to pass up.
UPS had an awful earnings announcement at the end of January. The company missed revenue expectations by $80 million and earnings estimates by $0.06 per share — coming in at $16.93 billion and $1.63 per share, respectively. UPS reported that while U.S. package volume was up 5% during the fourth quarter, average revenue per package was down 0.3% during the same period, which left operating revenue flat compared to the previous year.
Management also lowered guidance for 2017, giving an EPS projection of $5.80 to $6.10, which was well below the market consensus of $6.17. Add to that the fact that Amazon (NASDAQ:AMZN) announced on Feb. 1 that it is planning to build an air cargo hub to accommodate its own fleet of planes and the fact that oil prices remain relatively high, and you’ve got a recipe for more bearishness ahead.
After UPS’s short-lived bounce the past two weeks, we expect the stock to drop back down to its recent lows around $105.
‘Buy to open’ the UPS April 105 Puts (UPS170421P00105000) for a maximum price of $1.88.
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InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.
