3 Options Strategies For Fedex Earnings

Fedex (FDX) is due to report earnings on March 16th after the closing bell. The Barchart Technical Opinion rating is a 56% Buy with a strengthening short term outlook on maintaining the current direction. 

FDX rates as a Strong Buy according to 23 analysts with 10 Strong Buy and 13 Hold ratings. Implied volatility is 36.69% which gives FDX and IV Percentile of 47% and an IV Rank of 40%

Today, we will analyze three different ideas:

• A Short Iron Condor
• A Bull Put Spread
• A Butterfly Spread

Short Iron Condor

The first strategy is a short iron condor. An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes. Fedex’s IV Percentile is showing 47%, which means the current level of volatility is higher than 47% of the occurrences in that last twelve months.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Using the March 17 expiration, traders could sell the 185-strike put and buy the 180-strike put. Then on the calls, sell the 227.50 call and buy the 232.50 call.

Yesterday, that condor was trading around $0.90 which means the trader would receive $90 into their account. The maximum risk is $410 for a total profit potential of 21.95%.

The profit zone ranges between 184.10 and 228.40. This can be calculated by taking the short strikes and adding or subtracting the premium received.

Let’s take a look at another potential option strategy.

Bull Put Spread

Traders thinking that FDX might have a positive response to earnings could just trade the bull put spread side of the iron condor.

Trading just the bull put spread side would involve selling the March 17th 185 put and buying the 180 put. This spread could be sold yesterday for around $0.50 or $50 in total premium. 

The maximum gain is $50 with total risk of $450 for a potential return of 11.11% with a breakeven price of 184.50.

The final idea we will look at is a butterfly spread.

Butterfly Spread

A butterfly spread is constructed by buying an in-the-money call, selling two at-the-money calls and buying an out-of-the-money call. The trade is entered for a net debit meaning the trader pays to enter the trade. This debit is also the maximum possible loss.

The maximum profit is calculated as the difference between the short and long calls less the premium that you paid for the spread.

Using the March 17 expiry, traders could buy the 197.50-strike call, sell two of the 207.50-strike calls and buy one of the 217.50-strike calls. The cost for the trade would be $215 which is the most the trade could lose. The maximum potential gain is $775 which would occur if FDX finished right at 207.50 at expiration. 

Conclusion And Risk Management

There you have three different trade ideas for Fedex’s earnings. All three are risk defined trades, so you always know the worst-case scenario even if FDX makes a bigger than expected move.

Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital. 

Short-term trades also have assignment risk, so traders need to be aware of that possibility.

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.

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