Can This Transport Keep Trucking? Options Trader Thinks So

Can This Transport Keep Trucking? Options Trader Thinks So

Someone’s looking for a major trucking stock to keep motoring higher.

Check out Monday’s activity in Knight-Swift Transportation (KNX), the country’s largest operator of tractor trailers:

  • A block of 25,000 September 35 calls was bought for $3.36.
  • A block of 25,000 August 35 calls were sold at the same time for $2.26.
  • It translates into a net cost of $1.10.
  • Volume was below open interest in the August contracts, but not the Septembers. That suggests trader rolled an existing position forward in time.

Calls fix the price where investors can purchase a stock, so they gain value when shares rise. Their relatively low cost can generate significant leverage on a percentage basis, letting traders profit from a rally with limited capital at risk. (See our Knowledge Center.)

 Knight Swift Transportation (KNX) with 50-day moving average and potential resistance zone.
Knight-Swift Transportation (KNX) with 50-day moving average and potential resistance zone.

KNX rose 0.90 percent to $37.16 yesterday and is up 13 percent so far in July. The trucking company has had mixed results as volumes weaken this year. Still it’s managed to improve profitability and raise hopes of a strong 2020.

Monday’s option trader apparently shares some of that optimism but KNX is stuck at an old high from September. Adjusting the position gave him or her an additional month for a potential breakout.

Overall option volume was 10 times the average amount in the last month, with calls accounting for a bullish 87 percent of the total.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.