IAC/InterActiveCorp (NASDAQ: IACI) quarterly profit fell by 4.2% and the company missed EPS estimates, reporting earnings of $0.24 per share this morning compared to expectations of $0.35 per share. The Lending Tree segment of IACI operated at a loss for the third quarter, dragged down (like everything else) by the slowing housing market. However, IACI shares are climbing this morning on rising revenues for the media and advertising side of their business, which includes Ask.com and Citysearch. The company's HSN home shopping network, which had been struggling, is showing signs of recovery with revenues that rose by 5% and a Goldman Sachs analyst said the HSN figures bode well for future growth. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on IACI.After hitting a one-year high of $40.99 in February, the stock fell to a 52-week low of $25.08 in August. IACI opened this morning at $29.50. So far today the stock has hit a low of $28.89 and a high of $29.65. As of 11:00, IACI is trading at $29.23, up $0.84 (2.9%). The chart for IACI looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $25 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 an 8.7% return in just three months as long as IACI is above $25 at January expiration. IAC would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.
IACI hasn't been below $25 at all in the past year and has shown support around $27 recently. This trade could be risky if this morning's earnings aren't really as positive as they seem at first glance, but even if it happens, this position could be protected by strong support it has found at $26, where the stock has bottomed twice in the past 3 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 IACI.
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Reader Comments (Page 1 of 1)
11-01-2007 @ 12:14AM
SAGExSDX said...
i've owned this stock for over a year and i remember being really happy with the 52% return i had on the stock earlier this year... but it really boggled my mind as to WHY it was going up so much. i never saw any huge positive news for the company. needless to say, i watched the stock go all the way back down to its low. thankfully it's on the up and up again. hope that is a continuing trend...