United Parcel Service, Inc. (NYSE: UPS) shares are rising slightly today even after the company announced that it lost $2.58 billion, or $2.46 a share in the fourth quarter. UPS made a $6.1 billion payment to shift 45,000 of its employees from one pension plan to another during the quarter. Excluding that payment, UPS made $1.13 a share, which was in line with analyst estimates. The earnings thatmet estimates is buoying the stock, but the pension charge is keeping buyers from going too crazy. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on UPS.
After hitting a one-year high of $78.99 in August, the stock hit a one-year low of $64.01 last week. UPS opened this morning at $69.31. So far today the stock has hit a low of $69.31 and a high of $71.74. As of 10:55, UPS is trading at $71.34, up $0.42 (0.6%). The chart for UPS looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $65 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just two months as long as UPS is above $65 at March expiration. UPS would have to fall by more than 8% before we would start to lose money.
UPS hasn't been below $65 except for one day in the past year and has shown support around $69 recently. This trade could be risky if the economic slowdown continues, but even if that happens, this position could be protected by lower fuel costs which could help offset lower shipping volumes.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in UPS.
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Reader Comments (Page 1 of 1)
1-30-2008 @ 2:52PM
NewsVisual said...
UPS is playing up the fact that its adjusted earnings would have been higher. It was only the cost associated with the labor settlement that threw its figures off. Absent that cost, the company’s adjusted figures show that there would have been 8.7 percent increase over Q4 2006 in diluted earnings per share $1.13 for its fourth-quarter 2007.