DaimlerChrysler (DAI) and Euorpean automakers 'attractive'

DaimlerChrysler AG(NYSE: DAI) shares are doing well today after Goldman Sachs lifted the European auto sector from neutral to attractive today. If you think that the company won't fall by too much in the coming months after this news, then now could be a good time to look at a bullish hedged trade on DAI.

After hitting a previous one-year high of $96.12 in July, the stock dipped in August, but is making its way back toward previous highs, topping its 52-week best today. DAI opened this morning at $95.93. So far today the stock has hit a low of $95.72 and a high of $96.27. As of 10:45, DAI is trading at $95.94, up $2.11 (2.2%). The chart for DAI looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $75 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 4 months as long as DAI is above $75 at January expiration. XM would have to fall by more than 21% before we would start to lose money.

DAI hasn't been below $75 since March and has shown support around $90 recently. This trade could be risky if the company's earnings (due out 10/25) disappoint, but even if that happens, this position could be protected by the strong support the stock formed around $80 over the past five months..

Brent Archer is an options analyst and writer at Investors Observer.