By Jud Pyle, CFA, chief investment strategist for the Options News Network

Shares of United Parcel Service ( UPS) have fallen as much as 3.7% today to just below $54. The company is set to announce earnings next Thursday, April 23, and after quite a run from $38 to $56 in this bear market rally, some investors are seeking protection from a possible drop.

Within the first 20 minutes of trading this morning, UPS was down about 90-cents, or 1.6%, and more than 25,000 of the May 55 puts traded for around $2.50.

Open interest in these puts was only 6,392 Thursday, according to the Sidewinder report at www.ONN.tv. By 9 a.m., the May 45 puts joined the fray with volume of 8,500 vs. open interest of only 3,900.

In the news, JPMorgan Chase issued a report today suggesting weak IP and transport data signal downside risk for first-quarter UPS earnings. They also believe consensus 2009 EPS could fall further, but maintained their price target of $57.

An industry cohort, Federal Express ( FDX) has also had a great run from $35 to $54 in the past six weeks. Both companies have a similar P/E ratio around 20, and both may be victims of the consumer slowdown, but FDX doesn't report earnings again until June.

Both stocks held up nicely after FDX's strong quarterly report in March, but investors may be positioning in UPS puts on any possible weakness in numbers or guidance next week.

By noon Friday, volume in the May 55 puts in UPS topped 26,910, with the stock down $1.75, more than 3%, on 4 million shares traded. Those puts were trading as high as $3.25, but the buyers this morning who scooped them up for around $2.50 will be realizing a profit when the stock falls below $52.50.

As always, large put-buying like this does not mean that investors should run out and sell their UPS shares. But it is worth noting the action on these types of trades to gage what other investors might be thinking, given the substantial rise in the stock, the current weakness in the economy and risk of a negative earnings announcement.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."

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