With all of the fuss about the Evergrande fiasco, the Fed, and booster shots, you may or may not have noticed this week’s unexpected uptick in jobless claims …
It seems that even with the COVID-contingent benefits being taken away, not as many people are getting back to work as one might expect …
Which means the recent labor shortages we’re seeing may not be going away anytime soon.
This is definitely a bummer on many levels, but it does create some opportunities for trading …
Here’s 3 names that could feel the impact of the labor shortage.
FedEx (Ticker: FDX)
After a concerning earnings report this week, shipping stock FedEx (Ticker: FDX) is undoubtedly feeling the labor shortage pinch all the way down the line.
FedEx’s turn at the earnings confessional this week saw the shares gap drastically lower, hitting a new 52-week low by the time the week was said and done.
Stock courtesy of StockCharts
FDX not only missed its Q1 earnings consensus, but also lowered guidance for the rest of the year. It cited costs associated with labor shortages – which are in turn causing higher wage rates, network inefficiencies, and increased expenses – as responsible for its $450 million year-over-year cost increase.
FDX’s share price isn’t the only thing that hit an annual low this week … in the options pits, FDX options are extra cheap, with the 30-day at-the-money implied volatility (ATM IV) hitting its lowest point in the last year (while FDX’s 10-day historical volatility surged …).
That might explain why FDX pits were popping on Friday, with 266% of their usual total volume, and with FDX open interest at an annual high.
Not only is FDX up against general labor shortages, rising costs, and supply chain woes, but the company is increasingly feeling pressure from Amazon (Ticker: AMZN) who is largely handling its own shipping.
With labor shortages not only impacting FedEx’s ability to load and unload at ports, as well as staff stores and delivery vehicles, it is also impacting retailers’ access to merchandise and staffing. This could push shoppers online, and a busy holiday season for AMZN doesn’t bode well for FDX.
I would be looking for a cheap put play on FDX, and right now the January 2022 term seems favorably priced (although like I said, FDX IV is at an annual low, which means options are as ‘on sale’ as we’ve seen them). FDX will step up to the earnings mic again before those options expire, however, so be sure to monitor your position closely.
United Parcel Service (Ticker: UPS)
Now, before you say that listing FDX and UPS in the same list is a cop-out … hear me out.
United Parcel Service (Ticker: UPS) took a sympathy swoon after FDX earnings …
Stock courtesy StockCharts
But its CEO was quick to correct the misconception that UPS and FDX are essentially one and the same, saying UPS had already baked in rising labor costs to its current earnings forecast, and planned to hire 100,000 additional workers headed into the holiday season.
However, she did admit that the current shipping supply chain bottlenecks wouldn’t be resolved in the immediate future.
UPS has overall outperformed its rival, with a net gain of approximately 14% so far in 2021 (by contrast, FDX is in negative territory for the year, down about 12%).
But of course, I’m more interested in what’s going on in the UPS pits …
And right now, it looks like traders are more put-skewed than usual, with UPS’s put/call ratio of 1.15 in the 95th percentile of its annual range.
It’s 30-day ATM IV sits lower than 80% of all other readings taken in the last year, which isn’t quite as low as FDX’s, but still indicates UPS options are actually a good buy right now.
With UPS apparently set to out-deliver FDX in more ways than one (in both its services and its earnings), I would take the opposite stance on UPS, and find a low-cost call play with some time baked in — the standard expiration November and December terms are fairly priced, although UPS is slated to report earnings on October 25.
Hasbro (Ticker: HAS)
Toymakers are definitely feeling a labor-shortage-squeeze … notably from their overseas manufacturing.
Toy company executives have said they are anticipating shipping delays and manufacturing shortages to hurt in-store sales in the coming holiday season …
But toy maker Hasbro (Ticker: HAS) is perhaps the most dominant name in the industry, which might mean they have an advantage. As one of the biggest toy names on the planet, HAS has more control over the supply chain than its smaller rivals.
This could lead to HAS products being more available for flustered holiday-shopping parents, and HAS cannibalizing sales of its smaller rivals.
HAS has pulled back since gapping higher after earnings in July, and but I don’t think it’s out of the question for the shares to climb higher yet again.
Chart courtesy StockCharts
In the options pits, put open interest is more than double call open interest — though in general, HAS pits tend to be relatively low volume.
Cheap calls with a bit of time baked in might not be a bad way to play this name — or even a call spread, if you find an upside option that seems exceptionally expensive (they’re out there). Standard expiration November and January 2022 expiration look to currently be the best bargains right now, in terms of implied volatility being priced into the contracts. However, HAS reports Q2 earnings on October 25, so be mindful of holding through that event.
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