Massive covered call trade could net big returns for tech bull, writes Jay Soloff....
Call Buyers Could Still Be Right on This Shipper
04/28/2010 12:01 am EST
Shares of United Parcel Service Inc. (UPS) drifted more than 0.5% lower in early trading yesterday, despite the company reporting a 33% jump in first quarter revenue. Joining the season’s earnings parade, UPS reported its first quarter adjusted earnings of 71 cents per share, compared to 52 cents per share last year. Analysts were expecting earnings of 69 cents per share.
Apparently, investors had set their expectations above those published by the brokerage community. Specifically, data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) indicates that calls bought to open more than doubled puts purchased during the prior two weeks.
Furthermore, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.55 reveals that call open interest nearly doubles put open interest among options with less than three months until expiration. UPS' SOIR also arrives below 97% of all those taken during the past year.
Analysts were also bullishly aligned ahead of UPS' report. According to Zacks, 13 of the 21 brokerage firms following the shares rate them a "buy" or better.
Technically, UPS has found support in the 67.50-68 region, with added lift coming from the stock's ten-day moving average.
Bulls should keep a close eye on this region, as a break below this support could send the shares down to test potential support in the 65-66 region. This area provided stiff resistance for UPS for most of March, and is also home to the stock's 20-day moving average.
By Joseph Hargett, contributor, Schaeffer’s Trading Floor Blog
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