Put Selling on Expeditors International (EXPD) After Earnings Disappointment

In the wake of a negative earnings surprise, Expeditors International of Washington (EXPD) is trending lower, but this hasn’t stopped at least one investor from selling out-of-the-money puts today.

Ahead of the opening bell, the global logistics services company reported third-quarter earnings of 27 cents per share, two cents worse than what analysts were expecting. Although revenue topped estimates, the market is focusing on the EPS number, sending the stock down about 3.5%.

Looking at the May 25 puts specifically, we have seen more than 5,000 contracts hit the tape today versus open interest of 481. One block consisting of 4,850 contracts changed hands around 11:15 AM Eastern Time, going off at the bid price of $1.10 per contract. This suggests the puts were sold to open.

These intermediate-term puts have a delta of 14.5, as they are out-of-the-money by about 23%. For every dollar decline in the stock, the puts should gain 14.5 cents. EXPD is currently off $1.08, so these puts should be up about 15 cents, but they are up only a nickel, as selling pressure has sent implied volatility lower to 44%.

Put selling is typically thought of as a bullish-to-neutral strategy; in this case, the investor hopes that EXPD is trading above 25 at May expiration more than six months from now. If the stock is trading above this level at expiration, the investor keeps the $1.10 premium as the puts expire worthless.

If the stock breaches 25 between now and then, however, the puts could be exercised, at which point the investor could purchase EXPD at an essential cost of $23.90 per share (the strike price minus the premium).