UPS recently reported its earnings at the end of January, exceeding both earnings and revenue estimates. Alongside the report, the CEO announced a significant shift in strategy — cutting UPS’s shipping relationship with Amazon by up to 50%. The rationale behind this decision is to prioritize more profitable shipments over sheer volume, which has been a dominant factor in their partnership with Amazon. However, the market reacted sharply to this news, sending UPS tumbling nearly 20% in a single day. Examining the 6-month daily chart, UPS is now attempting to recover from this steep sell-off. To assess the potential for a rebound, I’m using a couple of key technical indicators for confirmation: RSI (Relative Strength Index): When the RSI drops below 30, it signals an oversold condition, often prompting traders to watch for a reversal. In this case, UPS’s RSI dipped below 30 between Jan. 30 and February 5 before bouncing back, a sign that selling pressure may be easing. DMI (Directional Movement Index): The DMI is composed of three lines: DI+ (green), DI- (red), and ADX (blue). A prevailing downtrend is indicated when DI- (red) is above DI+ (green). However, a potential shift occurs when these lines begin to converge or change direction. Currently, both DI- and DI+ are showing signs of reversal, hinting at an early signal of a trend change. While these indicators suggest a potential recovery, price action remains key in confirming whether UPS can sustain this bounce. The trade setup described below only needs a $1 move in UPS stock price to double my investment, meaning as long as UPS stays at or above 115 by expiration, the trade will be profitable. The nearest resistance level is around $118, with another resistance zone at $123. This gives UPS plenty of room to move higher before encountering potential selling pressure. The Trade Setup: UPS $114-$115 Bull Call Spread To take a bullish trade on UPS, I’m using a trade structure called a “bull call spread.” To construct my bull call spread, I need to buy a $114 call option and sell a $115 call option as a single unit. If UPS stock price is at or above $115 by expiration day, this trade will generate a 100% ROI on capital risked. Although this trade can be easily constructed on any trading platform, most options platforms like ThinkorSwim and TastyTrade offer a bull call spread template that automatically pre-fills these parameters, simplifying the order setup. Here is my exact trade setup: Buy $114 call, Mar 14th expiry Sell $115 call, Mar 14th expiry Cost: $50 Potential Profit: $50 I cover many of these setups in my book Mean Reversion Trading and provide further insights and resources on my website https://tradingextremes.com . -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: Nishant has a UPS 114-115 call spread expiring on 3/14/2025. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
How to bet on a UPS comeback after its recent stock rout with lesser risk using options