Crude prices rose sharply to start September, up 2.1% to $71.29/bbl, fueled by the evacuation of two Anadarko (NYSE:APC) platforms in the Gulf of Mexico ahead of the approach of Hurricane Gordon, while ExxonMobil (NYSE:XOM) warned of a supply crunch in Nigeria (see both below). In addition, with “ship-tracking data now pointing at a reduction in Iranian exports, renewed strife in Libya, and Venezuelan export availability hobbled by an accident at the key Jose terminal, the list of bullish headlines is getting longer,” said Michael Dei-Michei, head of research at JBC Energy.
Source: Seeking Alpha
Let’s consider Federal Express (Ticker: FDX):
The VantagePoint platform recently indicated downside momentum.
Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bearish crossover indicated by the blue predictive indicator line crossing below the black simple moving average on August 29th. We can combine that with the VantagePoint propriety neural index indicator moving from the Green to the RED three days before. This indicator measures strength and weakness for a 48-hour period, in this case weakness. The move to the RED position further makes the case for a potential bearish scenario. We also have the predicted high and low below yesterday’s actual high and low indicating further weakness. I want to play the VP continued bearish indication.
If you are strictly a stock trader, simply selling FDX in the $235.00 area is a prudent move. You are anticipating a move to the upside. It is always a good idea to enter a sell-stop order to mitigate potential losses. Placing that buy-stop in the $242.00 area will achieve that goal.
For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.
Because of the reasons given above, the purchase of a debit put spread may be one way to approach this situation. You will first want to calculate your target strike. In order to do this, you will need three pieces of data: current price, expiration date and the implied volatility associated with that expiration date. For FDX, that yields a target strike of ~$230. You may want to consider the FDX September 21st regular monthly expiration 2302/32.5 put spread, buying it for $0.60. The most you can lose is the premium paid and the most you can gain is the width of the spread less any premium paid. Max risk = $0.60 and max reward = $1.90
This means that you are getting odds of 3.16:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.