UPS Options: Buying UPS Call Options On Strong Holiday Trend

Yesterday, we started an exploration of stocks operating in the U.S retail industry as we expect this holiday season to usher in at least two quarters of increased sales and profitability for retailers. We continue on the second day of trading the options of companies operating in the retail sector as we explore the options of United Parcel Service, Inc. (NYSE:UPS).

UPS does not fall under the umbrella of a retail stock since the company does not own or operate any retail store. However, UPS while not operating in the core retail industry is seriously connected to the retail industry as retailers make use of its services to ship, deliver and fulfill customer orders especially in the ecommerce space. Hence, I thought it expedient to consider trading UPS options in this holiday season when most folks are fixated on the core retail stocks.

A Brief Overview

UPS with its market capitalization of $99.30B is a package delivery company. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories. During the year ended December 31, 2012, it delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages.

Why We Are Looking at UPS Today

UPS caught my attention yesterday after the stock rose to a new 52-Week high of $111.32. The increase recorded in the company’s share price yesterday attests to the increasing investor confidence that UPS might be on track for increased growth and profitability.

Investments to Optimize Performance

The first reason I am optimistic about UPS options going forward is the significant investments that the company has made towards strengthening its position for a hitch-free packaging and delivery service during this holiday season.

You will remember that the harsh winter last year caused many people to stay indoors while they conducted their shopping activities online. The unexpected increases in ecommerce shipments coupled with the unusually cold winter eventually overwhelmed UPS’s infrastructure such that many scheduled delivery ended up being a day late.

However, the company has made some significant investments that will enhance its operational efficiency. To start with, the company has announced the hiring of 90,000 to 95,000 temporary workers to help with logistics during this busy season.

In addition, UPS has introduced a number of technology-driven initiatives that will improve its performance levels. One of such initiatives is the route optimization software called ORION. ORION represents On-Road Integrated Optimization and Navigation technology that would contribute fuel savings and reduce carbon dioxide emissions. The company plans to have at least 45% of its driver route optimized with ORION by the end of this year.

Impressive Financials

The second reason I am optimistic about UPS options is the better-than-expected third quarter (Q3 2014) results that the company posted last month. UPS reported third quarter revenue of $14.29B to beat the consensus estimate of $14.20B. non-GAAP EPS came in at $1.32 per share to beat the consensus estimate of $1.29 per share. The best part is that the company reiterated its full-year guidance of adjusted non-GAAP EPS of $4.90 to $5.00 per share compared to the consensus estimate of $4.95.

How to Trade UPS Options

I am bullish on UPS and I recommend buying UPS calls. UPS calls are still hot for the next two quarters as the retail sector continues to boom during the holiday season. I recommend buying UPS Apr 2015 115.000 call (UPS150417C00115000) at an asking price of $2.20.

— Daily Option Alerts

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