An Indirect, Profitable Play on Rising Online Sales

The market seems to have stalled this week, which is odd considering how fearlessly traders weathered the political news in the U.S. last week.

But if you look at the rising number of COVID-19 cases in the U.S. and abroad, it gets a little clearer.

As CNBC reports:

Covid cases also continue to increase in the U.S. and abroad. The U.S. is recording at least 248,650 new Covid-19 cases and at least 3,223 virus-related deaths each day, based on a seven-day average calculated by CNBC using Johns Hopkins University data.

Even though we have several vaccines for preventing COVID-19, the rollout in the U.S. has been far from ideal.

We also have to contend with the issues plaguing the global rollout.

Vaccine skepticism in France – which is one of the most vaccine-skeptic nations in the world – is keeping the country from reaching its vaccination rate goals.

China’s vaccine, which it rolled out much sooner than ours, has been proven much less effective than initially perceived. Rather than being 78% effective, as initially announced, the vaccine is actually only 50% effective.

These headlines might have investors worried about just how long the pandemic will continue.

Still, those looking for a bright spot can turn to Target (NYSE:TGT), which has reported very strong holiday sales. It seems the “big box” store was able to hold on to some of the momentum it gained from the pandemic.

As the Wall Street Journal reports:

Comparable sales, those from stores or digital channels operating for at least 12 months, rose 17% in November and December from a year earlier. Store-based sales increased 4.2%, while digital sales more than doubled during that period, driven by same-day online pickup and delivery orders, the company said.

All those online orders had to be delivered, and consumers seem to be enjoying the convenience of online shopping. While we’ve traded on Target’s strong performance in the past, this week we’re looking at a company that helps online retailers get their orders to their customers.

Consumers Might Never Look Back

Consumers have been shifting away from brick-and-mortar shopping and toward online shopping for years, but things have accelerated during the past year because of the coronavirus pandemic.

We saw this in spades during the latest holiday shopping season. According to research from Adobe, average daily online revenue exceeded $3.1 billion during the holiday season, up from $2.3 billion last year.

To put that another way, according to the Washington Post, United Parcel Service (NYSE:UPS) and FedEx (NYSE:FDX) both had to turn away requests for additional deliveries this holiday season.

That means these shippers likely captured a huge portion of the nearly $800 billion worth of online sales eMarketer projected for 2020.

These are incredible numbers, and we expect this trend to continue as we head into 2021. As we already said the rollout of the coronavirus vaccine is going slower than expected, and we think consumers will continue to embrace online shopping.

As we already know, this is great news for UPS because all of those online orders need to be delivered. That makes it an excellent choice for a bullish put write.

The next question we have to answer is where do we set our strike price?

Advantages and Disadvantages

UPS recently pulled back from its highs as traders took some post-Christmas profits off the table. This brought the stock back down to longer-term support at $155, which would make an excellent strike price for a new short put.

The $155 level would act as support, and it should lower traders’ chances of being put the stock.

Daily Chart of United Parcel Service (UPS) – Chart Source: TradingView

The only problem is that in the past few days, UPS has picked up some more momentum, rising above $160 this week. That means traders might not collect as much income from puts with a $155 strike price.

For traders that are a little less risk-averse – though all put writes are risky – setting the strike at $157.50 would net them a greater premium upfront.

Traders would no longer have the support level to fall back on, though, so it’s important to weigh the advantages and disadvantages.

Regardless of your strike price, we recommend avoiding an expiration date that is beyond early February. You don’t want to be obligated in this trade for too long.

On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it.

 


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