Jill Malandrino of OptionsProfits and Scott Redler, Chief Strategic Officer of T3Live, tell you how to position a trade in the shipping giant. Skip Raschke ties it in with the options strategy, a vertical call spread expiring in April.
Fred Smith is the founder and CEO of FedEx(FDX), the company he started 40 years ago, in 1971. FDX under his vision and leadership has truly rewarded the quarter of a million full-time employees, and of course its stockholders. What he has accomplished should be public knowledge --he type that only Hollywood can produce.
His early days at Yale spawned the concept of what would become FDX. After graduating with a degree in economics, it was on to the hell of the Vietnam War serving as a Marine and receiving the Silver Star, the Bronze Star and two Purple Hearts. At the age of 27 he would start up FDX, some two years after he was discharged from the Marine Corps. He has been the company's very able CEO ever since!
Today FDX is correctly positioned for growth in its core business. Shipping revenues are rising, a trend that looks like a winner as we move into 2012 in spite of the plethora of recent financial news reporting of European financial problems. That type of commentary rings a bell. The same was said of our economy throughout this past summer.
FDX has an excellent balance sheet as the company is basically debt-free (cash exceeds total debt)! It is growing earnings at least 15% annually, a rate that equates well to its P/E ratio. The company is basically debt free as the total cash position exceeds total debt by almost $300 million.
Let's review the T3/OP video with Jill and Scott and they walk you through the fundamental and technical case for a trade:
Traders know that making a profit from the short side of FDX is risky business as its low 1.5% short interest float will attest. The lower the short interest, the less the professional trader wants to play the short side of the stock.
Trades: Buy to open 3 FDX April 82.5 calls for $5.00 and sell to open 3 FDX April 87.5 calls at $3.00.
The total risk for the trade is the premium paid, or $2.00. The option pricing is predicated on FDX trading around $80, $1+ lower than where it closed Monday. Thus, there is additional very short-term selling in FDX is built into these prices. Please make note of that fact.