FedEx (FDX) is down on earnings after hours. Here’s the trade I put on. (December 18, 2018)
FDX
I want to look at FedEx ( NYSE: FDX ) and here’s why: The company reported earnings and they sucked. The stock is down after hours (I don’t know if they sucked or not but the market does.), it was down like 6 percent after hours, down about $11.00.
I wanted to explain a trade that I put on before earnings earlier this afternoon. I put on a bull put spread where I sold the 175.00 put, this is in January, I bought the 170.00 put so it’s a $5.00 spread. I got a $1.30 for that, which means I am taking the risk of $3.70; so I am risking a lot more than I am taking in. But I felt okay about it and I still do, at least for the time being. And this is why: The implied move on the options market was for about $11.00.
The way I took that was, I looked at the closest to expiration options, which are this Friday, and I looked at the strike price, and I looked at the OFFERING price for the call and the offering price for the put and they added up to about $11.00. And so if I look at that as the implied move on the stock, you take $11.00 and then divide it by 185.00, which is the price of the stock and you get around the same number here.
So I decided that if the stock gapped down, which it is doing, below 175.00 the option market doesn’t think it is going to keep going. The option market thinks it will rebound a bit. Of course, I was hoping that the stock would take off here but it didn’t. Now it’s in my strike zone. I am not happy about it but it is really okay and this is why: Because the stock can, tomorrow, on any kind of strength, it can revert to the mean. You can see this is already kind of trading all over the place here on this.
Watch how this trades tomorrow around 175.00. My bet is at some point the stock is going to be moving back above 175.00 and then I will be able to close out that bull put spread in the next few days for a nice profit. First thing tomorrow morning it will not be profitable it will be a losing trade. So make sure if you did this trade at Option Market Mentor, that’s what we did, make sure you don’t have a stop in place that is going to get you knocked out right at the open. You can’t do that. We will look at the stock to trade down below 175.00 and then look for a rebound.
Free Chart