UPS August 8th Options Begin Trading

For investors considering United Parcel Service (UPS) shares, currently at $101.07, the article outlines two options strategies. Selling a $99.00 strike put for $3.45 offers a potential entry at an effective $95.55 if assigned, or a 29.58% annualized return if the option expires worthless (57% probability). Alternatively, a covered call strategy, selling a $109.00 strike call for $1.60 against purchased shares, yields a potential 9.43% return if called away, or a 13.44% annualized yield boost if the option expires worthless (73% probability), offering pathways for discounted entry or enhanced portfolio income.

Analysis

For United Parcel Service (UPS), currently trading at $101.07, two specific options strategies are presented for consideration. The first, selling a cash-secured put at the $99.00 strike, offers a way to potentially acquire the stock at a net cost basis of $95.55 after collecting a $3.45 premium. This represents a 2% discount to the current share price, with analytical data suggesting a 57% probability that the option will expire worthless, generating a 29.58% annualized return on the cash commitment. The second strategy, a covered call, involves selling a $109.00 strike call for a $1.60 premium against shares owned. This caps the upside but provides a potential total return of 9.43% if the stock is called away by the August 8th expiration, or an annualized yield boost of 13.44% if the option expires worthless, an event with a 73% probability. Notably, the implied volatility for these options (34-35%) is slightly elevated compared to the trailing twelve-month actual volatility of 33%, suggesting options sellers are being compensated with a marginal premium for the risk undertaken.

Key Decisions for Investors

• Investors seeking to acquire UPS shares at a discount could consider selling the $99.00 strike put to either purchase the stock at an effective price of $95.55 or earn a 29.58% annualized return if the stock remains above the strike price.
• Current UPS shareholders aiming to generate income could evaluate selling the $109.00 covered call, which offers a 13.44% annualized yield boost if the stock price stays below $109.00, but caps potential gains if the stock surges past that level.
• Given that implied volatility of 34-35% is slightly higher than the historical volatility of 33%, conditions are marginally favorable for option-selling strategies that capitalize on premium decay.
• These strategies are based on options pricing and probabilities; investors must supplement this with an independent analysis of UPS's business fundamentals before executing any trades.