UPS October 31st Options Begin Trading

The article details two options strategies for United Parcel Service (UPS) at its current $83.91 share price, offering distinct risk-reward profiles for institutional investors. Selling a $77 strike put, with a 76% probability of expiring worthless, offers a 13.84% annualized YieldBoost on the cash commitment, or a potential acquisition of shares at an effective cost basis of $75.54. Conversely, a $90 strike covered call, carrying a 67% chance of expiring worthless, provides a 19.66% annualized premium yield or a 9.95% total return if shares are called away. These strategies leverage implied volatilities of 35% (put) and 39% (call) against UPS's 33% trailing 12-month actual volatility, presenting avenues for income generation or discounted equity entry.

Analysis

The options market for United Parcel Service (UPS), currently trading at $83.91, presents two distinct strategies for income generation or strategic acquisition. A cash-secured put strategy at the $77.00 strike offers a way to either acquire shares at an effective cost basis of $75.54—a discount to the current market price—or generate a 13.84% annualized return on the cash collateral if the option expires worthless, an event with a 76% statistical probability. For current shareholders, a covered call strategy at the $90.00 strike can generate a 9.95% total return if the stock is called away by expiration, or provide an annualized yield boost of 19.66% from the premium if it expires worthless, an outcome with a 67% probability. Critically, the implied volatility in both the put (35%) and call (39%) contracts is elevated relative to UPS's trailing twelve-month actual volatility of 33%, suggesting that option premiums are currently rich, which enhances the appeal of selling these contracts.

Key Decisions for Investors

• Investors bullish on UPS but seeking a more attractive entry point should consider selling the $77 strike cash-secured put to either acquire shares at an effective cost basis of $75.54 or generate a 13.84% annualized yield on cash collateral.
• Current UPS shareholders aiming to enhance income from their position could sell the $90 strike covered call, which offers a 19.66% annualized premium yield while still allowing for capital appreciation up to the $90 strike price.
• Given that implied volatility is trading above the stock's historical realized volatility, both strategies represent an opportunity to capitalize on elevated option premiums, though this also signals that the market is pricing in a greater potential for price movement than has been observed over the past year.