Packaging a New Put Position

Packaging a New Put Position

Courtesy of Paul Price

United Parcel Service (UPS) shares were hit hard today after the company pre-announced that quarterly results will be less than previously forecast. Management now indicates $4.65 - $4.85 for the full year 2013 versus previous guidance of $4.80 - $5.06 per share.

                       

The shares may have over reacted. UPS was down $5.87 ( -6.42%) as of 3:15 EDT. Market Shadows used the drop and today's high volatility to sell a January 2015 $80 strike price put @ $6.30 per share.

If UPS closes at $80 or above on January 17, 2015, we will keep the $630 premium without having to buy any shares. That is our maximum gain.

If UPS closes below $80 on expiration date we are committed to buy 100 shares at a net cost of $80.00 - $6.30 = $73.70 per share.

UPS could decline by a further $11.88 per share without causing a loss on this trade.

See details of all our open and previously closed-out option positions here. 

Saturday's Barron's noted that the reduced estimate from UPS would still be a 5% increase from 2012's EPS from continung operations.

Disclosure:  I sold UPS Jan. 2015 $80 puts @ $6.30  in my personal account this afternoon.