Sponsored By:

United Parcel Service (UPS)

February 18, 2009





"Sell to open" the UPS March 40 Puts (UPSOH) for $1.40 or better

Dear Fellow Options Traders,

Despite exposure to a worldwide economic slowdown, United Parcel Service (UPS) also benefits from falling fuel prices and the secular growth of shopping online. With every online, non-service purchase, a box must be shipped, and UPS is there to do it.

Currently, UPS is near its 52-week low of $41.40. In fact, the price of $41.40 is the lowest price "Big Brown" has ever traded in the public markets.

The company went public in November, 1999 for an IPO price of $50 per share. In 1998, UPS reported sales of $24.8 billion and net income of $1.7 billion. Ten years later, these numbers have essentially doubled to $51.5 billion and $3 billion respectively for 2008.

With double the earnings power, the stock is 16% below where it traded 10 years ago. This stealth e-commerce play is currently trading at about 10-times free cash flow and has a dividend yield of $4.23%.

Given all of these reasons, we recommend selling to open the UPS March 40 Puts (UPSOH) for $1.40 or more. This is a bullish play for those traders who want to collect some premium upfront and do not mind possibly owning UPS at $38.65 if we are put the stock.

UPS is not scheduled to report earnings again until well after the March expiration. With quiet company news flow, falling oil prices and a depressed stock price, we like this trade because, as long as UPS stays above the $40 strike price, we should be able to keep our premium.

Have a great day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader