FedEx (FDX) reported earnings on Tuesday, beating the top and bottom line.
Despite the beat, FedEx tumbled more than 6 percent in afterhours trading. By Wednesday morning, the stock recovered sharply from its lows.
Scott Bauer used FedEx in an example trade that same day on the Schwab Network.
Here’s the setup:
- Scott said he would sell the July expiration 305/295 put spread, collecting $3.50 in premium
- His maximum risk would be $6.50 (width of the spread ($10), minus the $3.50 premium)
- His breakeven would be $301.50
As of Friday morning, the spread was trading at $2.00. That means the profit would be $1.50, representing a 23 percent return in two days.
Here’s where it gets interesting: If FedEx stays above $305 through July expiration, both puts expire worthless. Scott would keep the full $3.50 he collected.
That would represent a 53.8 percent return on risk, more than double the 23 percent gain.
Watch below for the full breakdown:
The analysis, insights, and strategies shared by Prosper Trading Academy’s coaches in Prosper Insider are strictly for educational and informational purposes only. All content reflects the personal opinions of the coaches and should not be construed as specific investment advice or recommendations. Any examples discussed are illustrative in nature and do not represent actual live trade signals or instructions to buy or sell securities. Trading involves risk, and individuals should carefully evaluate their own financial situation before making investment decisions.
