Shares of package delivery company United Parcel Service (UPS) are down about 10 percent over the past year. One trader sees a move higher for shares in the months ahead.
That’s based on the March $195 calls. With 43 days until expiration, 33,836 contracts traded compared to a prior open interest of 130, for a staggering 261-fold rise in volume on the option. The buyer of the calls paid $1.45 to make the bullish bet.
UPS shares recently traded for about $177, so shares would need to rise $13, or about 7.3 percent, for the potion to move in-the-money. That’s still well above the stock’s 52-week high of $233.
The surge in options volume comes as the company reports earnings, so it’s likely that traders expect shares to trend higher post-earnings. UPS has held up reasonably well operationally, with earnings rising by 11 percent amid a slowing economy in the past year.
Action to take: UPS is a global leader in logistics, and can likely trend higher following its drop over the last year. Investors can get a 3.3 percent dividend from here, which the company has recently bumped up from about 3.1 percent. There’s room for more growth in that income given the stock’s low payout ratio.
For traders, the March calls are a reasonable trade, which can likely deliver mid-double-digit gains. Traders may do better by waiting for a down day in shares to buy the calls, rather than buy in so close to earnings.
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.