So far, 2018 has been a wild stock trading year. In February, the equity markets corrected on a sharp rise in interest rates. But since then we’ve been battling a slew of headlines, many of them about global tariff wars between the U.S. and its trading partners.
Last night we finally got the news that the U.S. will impose an additional $200 billion on Chinese imports. China vowed to immediately retaliate with its $60 billion package.
But this morning FedEx (NYSE:FDX) is making its own headlines. They reported earnings and the stock fell 5% even though management delivered a decent report card.
FDX management beat the revenues forecasts, but they missed the earnings expectations. They cited several reasons for that but mainly higher wage costs. That was surprising since of all the variables at play, wages is easiest to forecast.
Nevertheless management raised the forward earnings guidance. But that is not reassuring investors yet. Wall Street perhaps sees more danger from the slowdown in transactions with China.
Fundamentally FDX is still a solid company. Although it is not a screaming buy it is valued inline with its competitors. However, technically there is an opportunity to profit in the midterm.
FedEx stock will bounce back from this setback. The company raised its outlook in confidence. Besides if it can shrug off the Amazon (NASDAQ:AMZN) headline, this small miss on earnings will be easy to trade.
So far, FedEx stock is down 2% while the S&P 500 is up 7% this year. It had been lagging the markets even though it had recently rallied sharply off of $240 per share. So this is the first line of immediate support. Should it fail, there is another band of support $10 lower.
Since markets are near all-time highs, I am less confident of the upside hopium then I am in the downside proven support. So today I share a trade that doesn’t even need a rally to profit. In fact even if FedEx stock and fall 15% from current levels and I can still retain my maximum gains.
We still have uncertainty especially with regards to the battle of China. It is escalating and neither side is showing willingness to bend. FDX is in the line of fire so caution is warranted.
Nevertheless, overall Wall Street is still optimistic on the stock as it is trading well below their price target ranges for FedEx stock.
FedEx Stock Trade Ideas
The Trade: Sell the FDX Nov 2 $215 put. This is a bullish trade for which I collect 75 cents to open. I have a 85% certitude that I will retain maximum gains. But if the price falls below my strike then I own shares. I would then need to manage off my breakeven point of $214.25.
Those who want to mitigate the risk that comes with selling naked puts can sell spreads instead.
The Alternate Trade: Sell the FDX Nov 2 $220/$217.50 credit put spread where my risk is limited. Yet if the spread wins would deliver 12% in yield.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
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