Will FedEx Corporation Breakout or Breakdown?

FedEx Corporation (NYSE:FDX) has my attention today based on an interesting pattern that I observed in its stock chart. FedEx with its market capitalization of $49.71B is involved in the business of providing a portfolio of transportation, e-commerce and business services under the FedEx brand. The Company offers its services through companies constituting four business segments: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services.

I last wrote about trading the options of FedEx Corporation about three months ago on February 27. The said post was titled ” FedEx Corporation: Fundamentally Undervalued and Currently Cheap”. In the said post, I talked about how lower oil prices could translate into better operating margins for FedEx and I explored the optimistic economic outlook that could precipitate an increase in shipping activities. I then took a bullish stand on FDX call options and I recommended that you buy the FDX Jul 2015 180.000 call (FDX150717C00180000at an asking price of $7.20.

FedEx has largely underperformed my expectations in the last three months, and I think it is high time we changed our strategy on trading FDX options. To start with, when I wrote that piece on February 27, FedEx had a market capitalization of $50.18B, the stock was trading at $177.10, and the options contract that I recommended had an asking price of $7.20. As at market close on May 22, FedEx had a market capitalization of $49.71, a trading price of $175.18 and the options contract had dropped to an asking price of $2.20.

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New FDX Chart Pattern Observed

FedEx Chart

The chart above shows how the shares of FedEx have traded within the last one year and it provides valuable insight into where the stock might be headed in the short to medium terms.

You’ll observe that the stock traded without a consistent pattern or trading direction in the last half of 2014. However, in the year-to-date period, the stock has been trading in a range marked by a $175 resistance point and another $179 resistance point.

Interestingly, the shares of FedEx have been building a rising trendline support (Green arrow) since April. The $175 resistance point and the rising trendline support can be combined to put the shares of FedEx in an ascending triangle. Hence, we can expect that FedEx will eventually breakout above the resistance or breakdown below the support.

How to Trade FDX Options

FedEx’s $175.18 closing price last Friday suggests that the stock has broken out above the range. Nonetheless, it might be hasty to conclude that FedEx now has a breakout, and it will be smarter to hold on at least until the stock establishes the breakout consistently in 3 consecutive sessions. In fact, I think that smart option traders would want to wait until FedEx breaches the resistance at $179 before making long calls on the FDX options. The reverse (Short) side of FDX option trades could be entered in the event that FedEx breaks down below the $175 resistance point.

From the foregoing, there are two ways to play FDX options sequel to a confirmation or a breakout above $175 or a breakdown below $175. You may want to consider these two contracts for strategic execution at the most opportune time. FDX Jul 2015 175.000 call (FDX150717C00175000) at an asking price of $4.57 and the FDX Jul 2015 175.000 put (FDX150717P00175000) at an asking price of $4.40

— Daily Option Alerts

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