UNP - Union Pacific - Company Description
Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, operates railroads in the United States. It offers transportation services for agricultural products, including grains, commodities produced from grains, and food and beverage products; automotive products, such as finished vehicles and automotive parts; and chemicals comprising industrial chemicals, plastics, fertilizers, petroleum and liquid petroleum gases, crude oil, and soda ash. The company also provides transportation services for coal, petroleum coke, and biomass; industrial products consisting of construction products, minerals, consumer goods, metals, lumber, paper, and other miscellaneous products; and intermodal import and export container traffic. Its rail network includes 32,070 route miles linking the Pacific Coast and Gulf Coast ports with the Midwest and Eastern United States gateways. Union Pacific Corporation was founded in 1862 and is headquartered in Omaha, Nebraska. Company description from FinViz.com.
On February 17th, somebody bought 70,000 of the Union Pacific (UNP) January $130 calls for $2.57 each. I made a note of it but never got back to do the research. When I was reviewing my notes this weekend I discovered that somebody had bought 140,000 of those calls and sold 140,000 of the January $150 calls at 50 cents. They put on 70,000 contracts on January 30th and another 70,000 contracts on February 17th. This is important because they spent just over $29 million in premium to put on this January spread with UNP at $108. I am betting that you have to be pretty sure of a trade to invest $29 million for a spread that is roughly $25 out of the money.
Somebody knows something. After Warren Buffett bought BNSF Railway, maybe somebody else is looking to grow by acquisition. I have no clue what is going on but you do not bet $29 million just because you are feeling lucky.
The railroad reported earnings on January 19th of $1.39 that beat estimates for $1.33. Revenues of $5.168 million beat estimates for $5.143 billion. The company said it was optimist for 2017 as coal shipments began to increase again and the energy sector was recovering. That means additional frac sand shipments and more drill pipe shipped to the shale fields. Coal shipments were down -25% in 2016 and -6% in Q4.
They guided for low single digit growth in freight volumes compared to volume declines in recent quarters. The CEO said various macro-economic indicators that drive the core business were also improving.
UNP is the only railroad serving all six major gateways to Mexico and they connect to Canada's rail system. Their routes cover 20 states.
They bought back $940 million in shares in Q4.
Earnings April 20th.
Shares of UNP have been in a choppy uptrend for the last year and made a new high in January. Shares fell last week when the Transports crashed for a single day. This will give us a buying opportunity for a long-term hold. I am going to follow the big money trade described above but I am not going to add the short call. At 50 cents, it is not worth it and I am going to pick a lower strike just in case that investor was overly optimistic.
Buy Jan $120 call, currently $4.95, no initial stop loss.
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