Mattel Inc. (NYSE: MAT) shares are trading higher today after a Barron's analyst forecast on Sunday that as the recent toy recall crisis subsides and investors gain confidence, Mattel stock should make considerable gains. The analyst predicted that Mattel stock could rebound as much as 50%. 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 MAT.After hitting a one-year high of $29.71 in April, the stock hit a one-year low of 20.27 on Friday. MAT opened this morning at $21.31. So far today the stock has hit a low of $21.05 and a high of $22.07. As of 10:40, MAT is trading at $21.61, up $1.11 (5.4%). The chart for MAT looks neutral and steady, while S&P gives the stock a 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $17.50 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. This particular trade will make a 4.2% return in just 3 months as long as MAT is above $17.50 at January expiration. Mattel would have to fall by more than 19% before we would start to lose money.
MAT hasn't been below $20 at all in the past year and has shown support around $20.50 recently. This trade could be risky if the company's Chinese imports continue to have big problems, but even if that happens, this position could be protected by the fact that investors have already trimmed the share price by 30% from recent highs. More bad news may already be priced into the stock.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Brent neither owns nor controls positions in MAT.
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