Stock of the Week: FedEx

This week we will focus in on a stock in the transportation sector which has seen a rather sharp selloff lately. In the last 10 days, the transportation sector ETF (NYSE: IYT) has sold off 11.5%. A closer look into the major players in the space reveals that FedEx (NYSE: FDX) has sold off nearly 20% in the same time period. This week's trade of the week will be on FedEx.

The last 10 days have been almost straight down. With this in mind, we also notice that the volatility has spiked dramatically. There are a few ways to approach this, but they both will include the use of options to collect on the higher-than-average premiums we can collect.

The first option is simply to sell a naked put at the $160 strike price and January monthly expiration. As of this writing, you can collect over $1 by selling this put, which will allow for the stock to fall another 15% from current levels. You might think that this is more than enough room, but remember, it fell 20% in just the last 10 days, so your play here is really hoping the drop is nearing an end.

The other option is to reduce your capital exposure (margin requirement) and sell a put spread. In this approach, you could still sell the $160 put in the January monthly expiration, but now you would spend about $0.50 and buy the $150 put to limit your capital outlay as well as reduce your overall risk.

Both options are a fine way to play for a bounce, or at least a slowing of the decline in FedEx. Remember, it sold off 20% in just 10 days, so any strike price selection closer to that $160 could very quickly become in the money - which we all want to avoid for such a pricey stock.