N:UPS, spent most of 2015 moving in a sideways channel between 95 and 102.50. It attempted a break out to the upside in October, but that failed upon reaching 107.50. Since then it has moved lower, falling below the prior channel to start 2016. After finding support at 87.5 the stock bounced and is now back retesting that channel from the downside into earnings in the morning.
As it rises the momentum indicators have turned bullish. The RSI is rising and about to cross the mid line while the MACD is crossed up and rising. The Bollinger Bands® are tightening but the upper one is still falling hard. This goes against the price and momentum. The price is extended from the 50, 100 and 200 day SMA’s which could lead to a snap higher, and the movement Friday brought it back to close over the 20 day SMA for the first time since December 1st.
There is support lower at 91.15 and 88.50 followed by 87.50 and 85.50. Resistance higher may show up at 93.50 and 94.50 followed by 96 and 98 before 99.55. The last 6 earnings reports have been followed by a 1.50% move on average or $1.40 making for an expected range of 91.50 to 94.50. Short interest is low at 1.1%.
The February 5 Expiry Straddles suggest a larger $3.60 move by expiry Friday with implied Volatility at 46% above the February at 27%. Open interest is mainly above the current price for this week, with the biggest from the 94 to 95.5 strikes. There was a large block of weekly 93.5 calls traded as a buy write today giving the investor a basis of 91.34 for a possible 2.37% return this week if called away.
Trade Idea 1: Buy the February 5 Expiry 93.5/95 1×2 Call Spread for a 10 cent credit.
Trade Idea 2: Buy the February 5 Expiry 93.5/95/96.5 Call Butterfly for $0.45.
Trade Idea 3: Buy the February 5 Expiry 93.5/95 Call Spread for 75 cents.
Trade Idea 4: Buy the February 5 Expiry 93.5/95 Call Spread and sell the February 5 Expiry 90 Put for free.
Trade Idea 5: Sell the February 5 Expiry 90/96 Strangle for a $1.30 credit.
#1, and #2 look for a move higher but not to exceed about 96, following options projections. #1 is profitable from anywhere up to 96.10, while #2 makes money between 93.95 and 96.05. #3 looks for the upside and is profitable above 94.25. #4 adds leverage to increase the profitability range to above 93.50. #5 looks both ways and uses the big open interest, today’s big volume as well as the historical range. It is profitable between 88.70 and 97.30 Friday.
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