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Income Trade in UPS

Home › Forums › Income Trades › Income Trade in UPS

  • This topic has 1 reply, 1 voice, and was last updated 8 years, 2 months ago by Steven Place.
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  • January 26, 2015 at 11:06 am #2086
    Steven Place
    Keymaster

    Very nasty couple of days for UPS. As it was heading into earnings, the stock was breaking to new all time highs… and then it got ugly. Today’s downgrade now has the stock in a steep correction.

    ups-daily

    So am I bullish here? Meh. This is more about being bearish volatility. The stock has a big fat range it’s headed into from the Aug-Nov price action, and the upside’s probably limited for a while.

    I think that the stock is going to start working out some kind of a range.

    What I want to do is “build out” an income trade. I’ll start with iron butterflies and as the stock moves I will roll the losing side out, thereby morphing the trade into an iron condor.

    The reason I’m using butterflies instead of calendars is because the implied volatility is still quite hot in the stock, and I expect that to cool off here too.

    Here’s the trade:

    Sell to open UPS Mar 100/105 call spread for 1.85

    Sell to open UPS Mar 100/95 put spread for 1.80

    If we see a move to 97 or 103, we will roll the losing side further out via a “butterfly roll.” (Sounds like sushi. I could use some sushi right now…)

    ups-risk

    March 19, 2015 at 11:32 am #2087
    Steven Place
    Keymaster

    And for the past two months… UPS did nothing that required an adjustment. And it’s pinning 100.

    ups

    This is what I’d call a “lotto ticket” outcome on an income trade. Great return on risk, but don’t expect this to happen every single time.

    Buy to close UPS MAR 100/105 call spread @0.47

    Buy to close UPS MAR 100/95 put spread @0.35

    Can you try and milk it further? Sure, just have a range that if breached you bail on the trade.

    Total return on risk is 215%.

    ups-risk

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