Options traders are betting on Fedex to deliver the goods when it reports earnings Wednesday afternoon, and help the beaten-down transports space move higher in the second half of the year.
The Dow Transports ETF is down more than 17% this year, largely due to challenges posed to the industry by the coronavirus pandemic. Fedex, while faring slightly better, is still down 9% in 2020.
However, traders are looking at Fedex’s earnings report as a possible kickstarter for the space and are betting on a lot of gains in a short period of time.
“Calls outpaced puts about 1.5 times to 1 [on Monday], but the open interest was more evenly distributed here,” XP Investments Managing Director Bonawyn Eison said Monday on CNBC’s “Fast Money.” “Taking a look at the at-the-money straddle out until this Thursday, it’s implying about a 7.5% move in either direction between now and expiry,”
Bonawyn also pointed out that the move being implied by the options market is more or less in line with how Fedex has acted following earnings over the last four quarters. This is a stock that likes to jump around after earnings reports, and this time, Monday’s most active contract was a bet on that shift being realized to the upside.
“The trade that really jumped out to me was the July 2nd expiry 140 calls,” said Eison, “Those were trading for about $2.80, putting your breakeven about 6.5% [higher], playing for a reversal in the stock.”
Fedex was trading more than 3% higher on Tuesday afternoon.