An options strategy to play a potential rebound in this beaten down delivery giant
UPS reported earnings on April 30, and while they managed to beat estimates, the outlook for the upcoming quarter fell short of expectations. They also announced 20,000 job cuts following their recent split with Amazon — news that didn't exactly inspire confidence. Amid all this negativity, several analysts have slashed their price targets. That said, the average target still hovers around $110 — noticeably higher than where the stock is trading now. For this trade, I'm taking a contrarian stance on this beaten-down name, especially as the technical charts start to hint at a possible bounce. It's also worth pointing out that UPS tends to move in tandem with rival FedEx, so any strength in that name could serve as an early signal for upside in UPS. Beyond the headlines, let's break down what the technicals are saying. Here's a look at the 6-month daily chart of UPS. The MACD is a popular tool not just for identifying the current trend but also for spotting potential reversals. On April 21, the MACD began signaling a possible shift in momentum, marking the early signs of a trend change. The Relative Strength Index (RSI) helps gauge the strength behind a stock's price movement. With the MACD already pointing bullish, the RSI offers further confirmation — it's been climbing sharply, reinforcing the case for growing momentum behind this move. The trade setup: UPS bull call spread To initiate a bullish position on UPS, I'm using a strategy called a "bull call spread." This involves buying an at-the-money (ATM) call option while simultaneously selling an out-of-the-money (OTM) call — combining both legs into a single, defined-risk trade. In this setup, UPS only needs to move $1 in the right direction for the position to deliver a 100% return, effectively doubling the capital at risk. Here is an example trade setup assuming UPS is trading at $101/share after market open. Buy $101 call, June 6 expiry Sell $102 call, June 6 expiry Cost: $50 Potential Profit: $50 Notes: Strike selection : Strikes will vary based on UPS's price at the time of entry. The ideal setup involves buying an in-the-money (ITM) call and selling an out-of-the-money (OTM) call, effectively creating an at-the-money bull call spread. Expiration : It's best to give these setups 24–35 days to work, especially when trading around sharp moves or knee-jerk reactions. Profit target : If UPS reaches or exceeds the short strike by expiration, the trade can return 100% on the capital risked. For example, with 50 contracts, you'd be risking $2,500 for a potential $2,500 gain. I dive into setups like these in much more detail in my book Mean Reversion Trading , and you can explore hundreds of real trade examples on my site: tradingextremes.com . -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: Pant has a UPS 101-102 call spread expiring on June 6. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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