Buy The Breakout In Union Pacific (UNP)

Shares of the railroad operator, Union Pacific (UNP), are currently up 15% year to date. Union Pacific trades at a P/E ratio of 17.62x (2014 estimates), PEG ratio of 1.12x (2014 estimates), 6.9% revenue growth, 1.89% dividend yield, and has an average analyst price target of $207. On Monday, April 21st, Citigroup maintained a buy rating on the stock with a $210 price target.

Unusual Options Activity

On Wednesday, May 14th, someone purchased 5,000 June 21 $200 calls for $0.57-$0.60 each late in the trading session. The call to put ratio was 2.5:1 and call activity was more than 5 times the average daily volume. Implied volatility rose 3.8% to 14.27.

[Editor’s note: Learn more about reading order flow for unusual options activity here.]

Technical Analysis

Shares of Union Pacific have started to breakout above the $190 resistance level that had been in place over the last two months. At current levels the reward/risk ratio on the long side is roughly 2.5:1. Look for a measured move up to $200 over the next month and possibly more given the aggressive options activity ($190-$180=$10+$190=$200).