In a previous article, “FedEx (FDX) Delivering Profits – Covered Calls” we analyzed the package delivery business in light of the declining cost of fuel.Using PowerOptions powerful stock options search tools we found four positions with stock options expiring in December of 2006, two positions for Federal Express (FDX) and two positions for United Parcel Service (UPS). The average return for the positions was +1.4% in only 33 days.
All four positions were profitable, and even though the stock price of FDX declined, both FDX positions were profitable. And although the out-of-the-money [OTM] covered calls stock options position for FDX did not exhibit a spectacular return (+0.4%), it wasn’t nearly as bad as holding the position outright which would have resulted in a loss of -0.9%. Both in-the-money [ITM] positions, one for FDX and one for UPS, returned the maximum potential profit, +2.4% and 1.4%, respectively.
Competitors for FDX and UPS include: DHL Worldwide Network S.A./N.V. (private), and United States Postal Service (private).
With the decline in the cost of fuel and the massive amounts of packages shipped for the holiday season, we’re still bullish on FDX and UPS. Using PowerOptions stock options search tools, we found the following attractive covered calls stock options positions for FDX and UPS:
|PowerOptions Covered Calls for FDX & UPS December 22|
|FDX||108.62 (+0.08)||FDXBB||07 FEB 110.0 (58)||3.50||3.2||3.3||4.6|
|UPS||74.20 (-0.35)||UPSBO||07 FEB 75.0 (58)||2.05||2.8||2.8||4.0|
|FDX||108.62 (+0.08)||FDXBA||07 FEB 105.0 (58)||6.40||5.9||2.7||2.7|
Covered calls ITM positions generally have less return and greater downside protection, as illustrated by the last position (FDX) in the table above with potential return of +2.7% and downside protection of +5.9%, for example.
Covered calls OTM positions generally have less downside protection and greater maximum profit potential, but require the underlying stock price to appreciate in order to realize the maximum potential profit. The first two covered calls positions in the table above are OTM, as evidenced by their respective higher potential return and smaller downside protection.
The covered calls ITM/OTM tradeoff for potential returns versus downside protection illustrates the beauty of covered call investing, as it allows investors to tailor their investments to their own personal risk/reward profile.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute bullish, bearish or neutral strategies for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing stock options positions.
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