We’re coming to you one day earlier than usual this week because Team Tematica has some rather exciting meetings in New York. Rather than short-change you with a quick note tomorrow, we’d prefer to give you your money’s worth today, complete with a new call option trade. Here we go…

Adding Calls for the “Missing Link” Connected Society Company

Earlier today we added shares of United Parcel Service (UPS) to the Tematica Select List with a $122 price target given the year to date drop in the shares despite the accelerating digital shift in consumerism. As we pointed out in our analysis of the January Retail Sales report last week, the shift toward digital commerce continues to accelerate and we see that a positive tailwind for UPS’s business and comments from UPS’s annual investor day held yesterday confirm our view. During that investor briefing, UPS lifted its 2018-2019 outlook, which included EPS ahead of current Wall Street expectations.

Over the coming months, we not only have Spring Break and the spring shopping season, but also the Easter holiday that falls in mid-April. This is later than usual and means traditional retailers are likely to see some challenges when it comes to current quarter comps, but from our perspective, the timing issue is likely to give UPS shares a strong finish to the current quarter as well as a solid start for the June quarter. All of this has us adding the United Parcel Service  (UPS) $110 April 2017 calls (UPS170421C00110000) that closed last night at $1.65 to the Tematica Select List.

These calls tend to trade rather wide, with yesterday’s trading range between 1.36-1.73, and as we add those calls we’re going to factor that wide trading range into our thinking. As such, we would be buyers on the UPS $110 April 2017 calls up to $2.10. As we did with last week’s recommendation on the Trinity Industries (TRN) calls (more on them in a minute), we are holding off with a stop loss as we’ll look to use any pronounced weakness, including a pullback in the market, to scale into the position further.

• We are adding the adding the United Parcel Service  (UPS) $110 April 2017 calls (UPS170421C00110000) that closed last night at $1.65 to the Tematica Select List.
• We would be buyers up to $2.10, but given prospects for a market pullback we are holding off with a protective stop loss

Doubling Down on Trinity Calls

Last week we added the Trinity Industries (TRN) April 2017 $30 calls (TRN170421C00030000) to the Tematica Pro Select List, and as we did this our stated strategy was to hold off with a protective stop loss ahead of the company’s December quarter earnings. Remember, the backdrop against the trade was rising weekly railcar loadings, and we expect the American Association of Railroad data to prove this out yet again this week.

In our view, Trinity issued conservative guidance relative to the capital spending comments from railcar leasing companies as well as rail companies. Given the sharp pullback in the TRN April 2017 calls to last night’s close at 0.48, we are scaling into the TRN call position today. That move will have a pronounced impact on our cost basis, dropping it from $1.00 to a blended one near 0.75. Given the level at which we are making this trade, we’ll hold off a few days when it comes to setting a protective stop loss lest we get whipsawed in the market in the very short-term. As we write this, stock market futures point to a weaker open than we’ve seen over the last several days.

• We continue to rate the Trinity Industries (TRN) April 2017 $30 calls (TRN170421C00030000) a Buy at current levels.
• Given the pullback in the TRN April calls, we would now be buyers up to $1.00

UUP Calls and the Fed FOMC Minutes Later Today

Later today we’ll get the minutes from the Fed’s last Federal Open Market Committee (FOMC) meeting. Coming off of Fed Chairwoman Janet Yellen’s testimony on Capitol Hill last week, we’re not expecting any major shocks, but given the tone of yesterday’s Flash February PMI’s from Markit Economics that showed a pick up in the speed of the global economy and climbing input costs the Fed minutes are likely to get a thorough going over nonetheless. In our view, the Flash PMI data, particularly the inflationary data, is likely to catch the Fed’s attention and is likely to lead to more Fed heads to talk boosting interest rates “sooner than later.”

We see that likelihood as rather positive for our PowerShares DB US Dollar Bullish ETF (UUP) June 2017 $27 calls (UUP170616C00027000) that closed last night at 0.27. The one wildcard we need to watch for will be when President Trump shares more details on his economic stimulus plans as well as tax reform initiatives. Odds are the Fed and many others will need time to digest the proposals as well as assess the potential economic as well inflationary impact.

We’ve been on the record as saying we see a greater chance of the Fed boosting interest rates at its May meeting than the one to be had in the next several weeks. Not only will the Fed have time to ponder Fed’s initiatives, but it will have that much more economic data at its fingertips. Remember, we opted for a June strike data with our UUP calls in order to capture that likelihood.

• We continue to rate the PowerShares DB US Dollar Bullish ETF (UUP) June 2017 $27 calls (UUP170616C00027000) a Buy at current levels.
• As a reminder, we would buy these UUP calls up to $0.32.