Juniper Networks, Inc. (NASDAQ: JNPR) is sinking after the company's earnings release yesterday evening. JNPR reported a 46% jump in quarterly profit, but only beat EPS estimates by a penny, far less than what many optimistic investors, who drove the stock up 3.5% yesterday prior to the earnings release, had expected. A Morgan Keegan analyst cautioned that Q3 expenses grew too much, and there is some worry that the company's expenses aren't under sufficient control. 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 JNPR.
The stock has climbed steadily over the past seven months, reaching a 52-week high of $37.95 earlier this month. This morning, JNPR opened at $35.17. So far today the stock has hit a low of $33.43 and a high of $35.17. As of 10:40, JNPR is trading at $33.95, down $3.19 (-8.6%). The chart for JNPR looks bullish but deteriorating, 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 December bear-call credit spread above the $40 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 an 8.7% return in two months as long as JNPR is below $40 at December expiration. Juniper would have to rise by more than 17% before we would start to lose money. Learn more about this type of trade here.
JNPR has not been above $40 since the heady days of the tech bubble and has shown some resistance around $37 recently. This trade could be risky if yesterday evening's earnings turn out to be better than they look at first glance, but even if that happens, this position could be protected by the strong resistance formed around $37, where JNPR flattened out and topped over the past two months.
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 JNPR.
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