Unusual Options Activity: United Parcel Service (UPS)

 United Parcel Service (UPS)

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  • Trader bets on further decline on coronavirus pandemic.

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  •  With the global economy set to slow thanks to the coronavirus, traders are hedging their bets. One is betting that United Parcel Service (UPS) will continued to decline from here.

    That’s based on the 15-fold rise in volume on the April $97.50 put options. From 320 open contracts, over 4,900 recently traded hands.

    The bet expires in 51 days. It is less than one dollar out-of-the-money thanks to the current share price just over $98.30.

    Any further weakness in shares will move the option in-the-money. The trader paid about $3.60 for the options, however, so shares will need to drop under $94 at expiration to profit.

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  • Action to take: We like the trade as a market hedge right now. Most global slowdown fears relate to trade, which in turn impacts the bottom line at UPS. Shares are already down more than 25 percent from their 52-week highs, and are likely to trend lower.

    It’s an inexpensive play to hedge, overall, and an easy one for traders to layer into.

    We suggest taking advantage of any further large, one-day drops in the market to take profits on the trade, rather than hold until expiration. The market has generally been quick to shake off recent fears within a few days.

    For those interested in going long shares, consider holding off until a better value, say, around $85 per share.

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