Revisiting the FedEx, UPS Puts

Just a quick update on the FedEx (FDX) and UPS (UPS) puts.  As the market seems determined to put itself into the sub-11,000 Dow camp, shares of these companies have declined and these puts have increased in value.  The higher strike price puts in both names have very little premium in them, while the lower strike prices have expanded a little.  

We are very close to our sales targets on both, and given today's activity in the overall market, we feel ready to sell these positions and take our greater-than 100% gains off the table here.

The rationale for initiating the put spreads two months ago (Mid-May) on both companies was that higher fuel prices would impact the companies' profitability.  Both FDX and UPS have warned that future quarter earnings will disappoint due to high energy prices, and this new knowledge has now been priced in by the market. 

We are now at a point where the market has taken these shares down more than 10% below the most recent technical support levels, and we could see a bounce in these shares if nothing more, than from an oversold level.  Given time, the premiums in the puts will inevitably burn off, right now we have October expirations, so that burn will definitely take time. 

Given that we are in both cases the majority of the way to our target exit prices, and we're only two months in to a five month long position, we are willing to take those gains off the table. 

RECOMMENDATION:  Sell the FDX $90 / $75 put spread for at least $10.70 today, 15 July 2008.  We originally published an exit target of $12.50  but our cost basis for this spread was only $4.10.  This is a return of 162% over the last two months.

The UPS October $70 / $60 put spread was $2.90 when we published our recommendation on 21 May 2008 to buy.  This morning that put spread is at $7.70, so we will recommend selling it at that level.  This is a return of 165% over the last two months.