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United Parcel Service (NYSE: UPS - option chain) shares are headed higher today after the company reported a fourth-quarter adjusted profit of 83 cents per share this morning, just missing analysts' estimates of 85 cents per share. However, UPS shares are trading higher today after the company said it will freeze management salaries and suspend its 401(k) matching program in order to cut costs. If you think that the stock 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.UPS opened this morning at $42.70. So far today the stock has hit a low of $42.40 and a high of $45.57. As of 12:40, UPS is trading at $44.69, up 2.27 (5.3%). 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 an April bull-put credit spread below the $35 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 7.5% return in just two and a half weeks as long as UPS is above $35 at April expiration. UPS would have to fall by more than 21% before we would start to lose money. Learn more about this type of trade here.
UPS hasn't been below $41 at all in the past year and has shown support around $42 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.
UPS hasn't been below $41 at all in the past year and has shown support around $42 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.
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Reader Comments (Page 1 of 1)
2-03-2009 @ 6:55PM
ryan said...
Suspending 401(k)'s? Ouch. I noticed sentiment becoming more bullish even though price (http://www.predictwallstreet.com/forecast.aspx?symbol=UPS)had been falling but all the sudden its back up today and the closed at their high. Hopefully the cost cuts will help them meet next quarters estimates