FDX Earnings: High Probability Bull Put Spread Trade

Fedex (FDX) is the leader in global express delivery services.

The company provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand.

The company is currently reporting, primarily through the FedEx Express (including TNT Express acquired in 2016), FedEx Ground and FedEx Freight segments.

FedEx Express offers time-definite delivery to more than 220 countries and territories, connecting markets that comprise almost the entire gross domestic product of the world.

Fedex is sitting nicely above the 50 and 200-day moving averages and is rated a 64% Buy with a Strengthening short term outlook on maintaining the current direction..

FDX Earnings Bull Put Spread

With earnings set for December 19th after the market close, implied volatility on FDX stock is through the roof.

Implied volatility is sitting at 48.40% compared to a twelve-month low of 17.70% and a high of 48.40%.

That means, it’s a great time to be an option seller.

If you have a bullish outlook for Fedex for their earnings announcement, then a bull put spread is a great strategy to employ.

To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.

A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.

Potential Benefits

Bull put spreads offer several advantages for options traders seeking to generate income while managing risk. 

They provide a defined-risk strategy, allowing traders to know their maximum potential loss upfront. 

Additionally, bull put spreads benefit from time decay, as they profit from the erosion of extrinsic value over time. 

This time decay accelerates as the expiration date approaches.

Bull put spreads will benefit from the drop in implied volatility that always occurs after an earnings announcement. 

Potential Risks

While bull put spreads offer enticing benefits, they also come with inherent risks. 

One significant risk is the potential for substantial losses if the underlying stock's price declines sharply. 

Traders must also consider the possibility of early assignment, which can occur if the stock price moves below the short put option's strike price before expiration. 

It's essential for traders to thoroughly understand and manage these risks when implementing this options strategy.

Selling an FDX Bull Put Spread

A trader selling the December 20th, $255-strike put and buying the $250-strike put on FDX would receive around $95 into their account, and would have a maximum risk of $405. 

That represents a 22.2% return on risk between now and the end of the week if FDX stock remains above $255.

If FDX stock closes below $250 on the expiration date the trade loses the full $405.

The breakeven point for the bull put spread is $254.05 which is calculated as $255 less the $0.95 option premium per contract.

Of the 27 analysts covering FDX, 15 have a Strong Buy rating, 1 has a Moderate Buy rating, 9 have a Hold rating and 2 have a Strong Sell rating.

Conclusion

Selling a bull put spread on FDX ahead of earnings can offer traders an opportunity to capitalize on anticipated bullish sentiment while managing downside risk. 

By carefully selecting strike prices and expiration dates, traders can position themselves to potentially profit from a favorable earnings outcome while limiting potential losses. 

However, it's crucial for traders to conduct thorough analysis and adhere to risk management principles to navigate the inherent uncertainties associated with earnings events.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.