United Parcel Service (NYSE: UPS - option chain) and FedEx (NYSE: FDX) shares are getting a lift after competitor Deutsche Post AG announced it will close all DHL Express service centers in the U.S. Since UPS has been the steadier of the two survivors over the past year, I am more interested in a trade on that stock. If you think that UPS 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 the stock.UPS opened this morning at $53.98. So far today the stock has hit a low of $52.80 and a high of $55.01. As of 12:45, UPS is trading at $53.53, up $1.61 (3.1%). The chart for UPS looks neutral and S&P gives UPS a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $40 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 6.4% return in just six weeks as long as UPS is above $40 at December expiration. UPS would have to fall by more than 24% before we would start to lose money. Learn more about this type of trade here.
UPS hasn't been below $40 at all in the past year and has shown support around $50 recently.
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 nor FDX.
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Reader Comments (Page 1 of 1)
11-10-2008 @ 2:11PM
bruce said...
I wouldn't invest in UPS until the U.S government investigates their insurance policies.
11-10-2008 @ 2:36PM
B. said...
So, how will this affect the Amazon "forward deploy" future?
11-10-2008 @ 3:40PM
john said...
It's not just DHL. UPS has cut back in Pensacola, Fl ,there are drivers that have 12 years seniority that are working back in the building. And no has gone to driving school in over 2 years for peak season. The Alabama district missed its projected goal by over $800,000 dollars the last qtr, which might not seem alot but that has effected 25 % of it routes. UPS full time drivers make just over $28 an hour and with over time thats $42 an hour, average hrs per week is 47.5. Part time cover drivers make close to $24 and hour. This is one reason why UPS rates are so high, the TEAMSTERS UNION bargains fro the pays rates. Start shipping FED-EX better service gets there faster and lower rates.
12-07-2008 @ 7:30PM
RETIRED ARMY said...
JOHN WHAT DO YOU KNOW ABOUT UPS WHERE DO YOU GET YOUR INFORMATION HIGHER RATES I AGREE FASTER SERVICE BY FEDEX DONT THINK SO I AM A DRIVER IN PA 10 YEARS MINUS 1 YEAR BOSNIA AND IRAQ FOR RESERVES I THINK YOUR INFO IS BOGUS
12-25-2008 @ 10:01PM
Derek said...
Are rates might be higher. papers show we are neck and neck on deliver service.UPS has been around for 100 years plus they are big and they know what they are doing.That is why they are still in business.And the union that is why they have dedicated employes.10 years of service ,driver.OH