Shares of shipping and logistics company United Parcel Service (UPS) are down about 12 percent over the past year. One trader is betting on a rally in the next few weeks.
That’s based on the August $205 calls. With 25 days until expiration, 5,468 contracts traded compared to a prior open interest of 173, for a 32-fold rise in volume on the trade. The buyer of the calls paid $1.58 to make the trade.
Shares recently traded for about $187, so they would need to rise $18, or about 10 percent, for the options to move in-the-money. That would still be well under the stock’s 52-week high near $234.
Earnings are down nearly half in the past year for the company, as rising costs have eaten into profits. That’s true even with a slight 6 percent increase in revenue in the past year.
Action to take: The stock is an industry leader, and priced at 14 times earnings, isn’t overpriced in today’s market. Shares also yield about 3.3 percent here, and the company recently raised its dividend payout.
The company next reports earnings tomorrow, July 26. So traders may want to buy ahead of earnings to potentially play a bounce, given the short-term nature of the call option. Consider taking a smaller than average stake, in case the company misses on earnings and shares potentially decline instead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.