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FedEx (NYSE: FDX) shares are falling today, hurt by rising oil futures and new record-high fuel prices as inventories fell more than was expected in the past week. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on FDX.
After hitting a one-year high of $119.10 in July, the stock hit a one-year low of $80.00 in January. This morning, FDX opened at $88.67. So far today the stock has hit a low of $87.15 and a high of $89.29. As of 11:45, FDX is trading at $87.97, down $2.20 (-2.4%). The chart for FDX looks bearish and steady, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $100 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 6.4% return in five weeks as long as FDX is below $100 at July expiration. FedEx would have to rise by more than 13% before we would start to lose money.
FDX hasn't been above $100 since December and has shown resistance around $94 recently. This trade could be risky if the cost of fuel decreases over the next month, but even if that happens, this position could be protected by resistance FDX might find at its 200 day moving average, which is currently around $95 and falling.
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 FDX.
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