FedEx Earnings Play Using Options

• Posted by Greg Harmon
• on June 21st, 2011

FedEx (ticker: $FDX) will report earnings before the bell Wednesday and that presents a trading opportunity. Leading into earnings the stock had fallen with the market and then found a base near 85 where it has found support previously. From the chart below you can see the move off of the base the last few days and gap higher Tuesday. Additionally the technical indicators, the RSI and MACD are supporting more upside. To run a lot higher it needs to clear the 50, 100 and 200 day Simple Moving Averages (SMA) and then the long term support/resistance line at 92.10. It has other macro

factors in it’s favor as well with Crude Oil falling. The bias is to the upside. I want a low cost way to make money on a decent move in reaction to earnings so I am looking at options. The implied volatility in the options is low so picking the correct strikes for reward and protection is imperative since there will be no volatility crush post earnings.

Trade Idea: Buy July 90/92.5 Call Spreads Funded by Selling July 82.5 Put

With all the potential resistance points above I do not want to put on such a wide spread that it never approaches the upper strike. I also do not want to risk a pullback to 85 so using the 82.5 Strike Put gives some funding but well below previous support. As I write this the combination is trading at about 38 cents. Should $FDX move to 92 tomorrow the spread should move to about a dollar. This trade takes about $1200 in margin so look to buy back the short put quickly.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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