(NYSE:FDX) finished about 4% higher on Tuesday while also tagging its highest intraday peak since the company's initial public offering in 1978. This positive price action was triggered by news that the package delivery service revamped an existing buyback program
, which will now allow the company to repurchase up to 32 million of its shares. As a result, bulls flocked to FDX's options pits, where about 28,000 calls crossed the tape -- more than quadruple the security's average daily call volume. By comparison, around 15,000 puts were exchanged.
Leading the pack was the April 2014 125-strike call, which saw close to 6,700 contracts change hands -- about two-thirds of them at the ask price, suggesting that they were bought. To be more specific, these out-of-the-money calls traded at a volume-weighted average price (VWAP) of $6.80. Meanwhile, open interest spiked by 4,160 contracts overnight, confirming the initiation of new positions.
By purchasing the calls to open, traders are betting on FDX to climb north of breakeven at $131.80 (strike price plus the VWAP) by April options expiration. This represents an expected rise of 7.1% from the stock's current perch at $123.04. The delta for this call presently sits at 0.51, implying it has about a 1-in-2 chance of moving into the money ahead of the close on April 17. However, should the shares remain south of the strike price over the next several months, the most yesterday's buyers stand to lose is the initial premium paid.
FedEx has performed solidly in 2013, gaining more than 34% year-to-date, and outpacing the broader S&P 500
(INDEXSP:.INX) by around 12 percentage points during the most recent three-month time frame. In fact, the shares touched a new record high of $124.12 this morning, after receiving a price-target hike to $135 from $131 at Deutsche Bank. It should be noted, however, that Buckingham Research downgraded the security to "neutral" from "buy" ahead of the opening bell.
This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.
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