Wednesday, August 28, 2013

FedEx Corporation (FDX) - Volatility Breaches Annual High Well Ahead of Earnings; Market BellWether Risk is Here

 FDX closed Wednesday trading at $108.50, up small with the 30-day implied volatility closing at 29.08%. The Charles Schwab optionsXPRESS Symbol Summary is included below.

Provided by Charles Schwab optionsXPRESS

I found this stock using an elevated volatility scan ad it's a follow up to the post I wrote on 8-25-2013. You can read that post by clicking on the title, below:

No Noise, Here are the Facts, and Why: The Market Will Go Up. The Market Will Go Down.

FDX is bellwether, and the option market is reflecting elevated volatility well ahead of earnings due out in mid Sep.

I've included the Options Statistics for FDX, below.

Provided by Charles Schwab optionsXPRESS

The two-year FDX Charts Tab is included (below). The blue portion is the stock price, the red is the 30-day implied vol.

Provided by Charles Schwab optionsXPRESS

On the stock side we can see that the price is right at a multi-year high. In fact, two-years ago this was a sub $80 stock and just a few months ago it was trading at ~$93. But it's the vol that caught my eye.

Check out the red line (the 30-day implied). In Jan the implied was trading in the 17% range, today it closed above 29% and is essentially at a multi-year high. The next earnings release for FDX is 9-18-2013, so just before Sep expriy. Volatility should rise into that event, and we're already at multi-year highs.

FDX is another one of those socks that measures much more than its own results when earnings come out, but rather an evergreen type of measure like WMT, HD, etc. As I alluded to in the prior post on 8-2-2013, retailers looked terrible (Walmart (WMT), Macy’s (M), Nordstrom (JWN), Target (TGT) and Staples (SPLS)) but the do-it-yourself guys (HD and LOW) were booming. So we're squarely in "I don't know land." It's the same picture in housing where we have two phenomena:

1. The latest data show existing home sales — which account for more than 90% of the housing market — are up 17% from the levels of last summer.
2. The latest data also show that new-home sales, which have less of a lag than the existing-home numbers and may better reflect real-time conditions, fell unexpectedly to a nine-month low.

"I don't know land" means uncertainty, and that means risk. For FDX, that means a multi-year high in the implied well ahead of earnings. It would not surprise me to see the implied for FDX go well in to the 30%-35% range -- a level not reached in over a year.

Finally, let's look to the Options Tab (below).

Provided by Charles Schwab optionsXPRESS

I've highlighted the front month vol which is actually over 30%. Oct is priced to around 27%. Obviously the difference is earnings, and that vol diff will open up substantially as we get closer to that Sep 18th date. Maybe FDX will provide some data that's more definitive, good or bad. But for now, it's reflecting uncertainty -- as well it should.

This is trade analysis, not a recommendation.

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