Sears Holdings (NASDAQ: SHLD) -- as well as most other retail outlets -- is taking a dive this morning after the Labor Department reported the biggest increase in the number of jobless claims since February. Worries of a weak consumer environment going into the holiday season have weighed heavily on retail, with several stocks across the sector trading at new 52-week lows today. Sears is hit particularly hard by reports like these because the company does not report its interim data between earnings releases. All investors in SHLD have to go on in the quarterly report, similar companies' performances and broad economic data. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on SHLD.After hitting a one-year high of $195.18 in April, the stock slipped to a 52-week low of $123.39 in September. This morning, SHLD opened at $134.66. So far today the stock has hit a low of $132.12 and a high of $134.75. As of 11:05, SHLD is trading at $132.61, down $2.61 (-1.9%). The chart for SHLD looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $160 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 4.2% return in just 1 month as long as SHLD is below $160 at November expiration. Sears would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.SHLD has not been above $160 since the stock's big drop in July, and has shown some resistance around $152 recently. This trade could be risky if the company's earnings (due out in mid-November) are a positive surprise, but even if that happens, this position could be protected by the resistance the stock formed when it topped around $150 early this month.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SHLD.
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Reader Comments (Page 1 of 1)
10-18-2007 @ 12:34PM
David Penn said...
Hello! I wanted to share a great story about a virtual investment site. Can I get an email to send it to???
Thanks, David
10-20-2007 @ 8:41AM
Tonya Beth said...
Jokes on you all you people who doubt the genuis of Eddie Lambert!! The reason the jobless numbers have gone up is because Eddie has fired so many of those dead weight old time employees. Now, with SHLD's cost reduced, the numbers are going to look GREAT. That Eddie can really manipulate the financial reports!
FORGET CLAPTON, EDDIE LAMBERT IS GOD!!!
11-13-2007 @ 3:20PM
barbara jack said...
A few years back. My son and I bought K-mart stock. We had close to a hundred stocks and lost them when K-mart went belly up.
My cousin has worked for K-mart for over some decades and was upset when I told her that Sears bought up K-mart. Not long ago she called and was very upset with me for saying Sears bought K-Mart. She said, K-Mart owned Sears and her company told her that. She has been a manager there for a long time and said K-mart would not lie to the employees. SOOOOO, who owns who? Really would like to know???
I am disappointed in Sears. I have bought several appliances from them. Recently a new Gas Stove. They delivered it, paid for delievery. But oh my, they brought it in and dropped it my kitchen, no set up, no leveling of it. I had to pay a repairman I use for work on my home. he came and leveled the stove and put the stuff together that were laying inside the stove. I called Sears, like over a dozen different people , even a call for action News person. Sears told them, they would refund my cost of the repairman. Surprise! They lied to the news person and to me. Way to go Sears! The other Sears products, also were not set up and had scratches on them. Yes, they were paid for as New, not floor models!
I have a feeling Sears does not care anymore,what a shame. I emailed everyone I know, literally world wide, about 200 online people and asked them to forward my email. Letting others to beware of Sears. I have received other emails sent to me, that said, they too got messed over by Sears and would be happy to send on my email and tell their story too.
Way to go Sears!
Have a grand day to all!
warmly. BJ