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Trump Entertainment Resorts Inc. (NASDAQ: TRMP) shares are on the rise after today's quarterly report, as the company announced higher profit on lower costs. Trump earned 21 cents per share on the quarter, 50% above analysts' expectations of 14 cents per share. 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 TRMP.After hitting a one-year high of $23.80 in November 2006, the stock tumbled to a 52-week low of $5.15 in August. TRMP opened this morning at $7.98. So far today the stock has hit a low of $7.83 and a high of $8.66. As of 11:05, TRMP is trading at $8.26, up $0.50 (6.4%). The chart for TRMP looks bullish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $5 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 13.6% return in just 6 months as long as TRMP is above $5 at April expiration. Trump would have to fall by more than 39% before we would start to lose money.
TRMP hasn't been below $5 at all in the past year and has shown support around $7 recently. This trade could be risky if the weakening economy puts a damper on consumer spending, but even if that happens, this position could be protected by strong support it has found above $5 over the past few months.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Brent neither owns nor controls positions in TRMP.
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Reader Comments (Page 1 of 1)
11-02-2007 @ 4:25AM
grubin said...
Donald hired the right team and took matters into his own hands. Other operators have to be sniffing at the door with his latest announcement of beating the analysts. Whats immediate, I say we will be over 10 and on our way to 14.00 per share with no other news, but if one person says they might be interested I could see the high teens in no time. Donald wont sell till he is back in the 30's if at all, but rest assured this single digit price did not bode well and it wont last long, buy this one now and you'll thank me forever more.