A FDX put option could triple in the coming month
As the holiday season hits full swing, shipping giant FedEx Corporation (NYSE:FDX) always comes into greater focus. It's looking like it could be a tough holiday season for FDX, with the stock running up to a trendline that has historically bearish implications.
More specifically, FedEx stock has rallied right up to resistance at its 160-day moving average, after a lengthy stretch below it. There have been five similar encounters with this moving average in the last three years, after which FDX stock was lower one month later by 9%, on average, per data from Schaeffer's Senior Quantitative Analyst Rocky White, with only one of the returns positive. From its current perch at $ 157.45, a move of similar proportion would the stock around $143, and erase its quarterly gain.
While those looking to speculate on FDX with front-month options will have to pay a relatively rich premium -- the security's Schaeffer's Volatility Index of 47% is in the 85th percentile of its annual range ahead of next week's Dec. 17 earnings report -- White's modeling shows that an at-the-money FDX put option could potentially return 213% over the next 10 days. In other words, prospective put buyers could more than triple their money on an expected 9% drop in the shares.
Looking at FedEx's earnings history only underscores the dire situation. The stock has finished lower the day after earnings in six of the last eight quarters, including a 13% drop back in September, and a 12.2% plunge one year ago. In these last eight quarters, the shipping name has moved an average of 5.5% regardless of direction. This time around, the options market is pricing in an almost double, post-earnings swing of 9.6%.
Options traders have kept their attention on calls, despite the equity's struggles in 2019. This is according to data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows a 10-day call/put volume ratio of 1.79. This ratio ranks in the elevated 65th percentile of its annual range, indicating the rate of call buying relative to put buying is unusual.