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Abercrombie & Fitch Co. (NYSE: ANF) shares are getting a boost this morning after fellow high-end retailer Nordstrom (NYSE: JWN) posted a third-quarter profit well above analysts' expectations. JWN's Q3 profit rose 22% to $165.7 million, or 68 cents per share, while analysts were looking for 52 cents. Investors are bidding up luxury retailers today in anticipation of good results from similar companies. If you think that ANF 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 that stock.After hitting a one-year high of $85.77 in October, the stock has declined over the past month. ANF opened this morning at $72.50. So far today the stock has hit a low of $72.01 and a high of $75.00. As of 11:15, ANF is trading at $74.66, up $2.30 (3.2%). The chart for ANF looks bearish 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 a December bull-put credit spread below the $65 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 9.9% return in just one month as long as ANF is above $65 at December expiration. Abercrombie would have to fall by more than 12% before we would start to lose money.
ANF hasn't been below $65 at all in the past year and has shown support around $70 recently. This trade could be risky if the retail market dives on a poor holiday season, but even if that happens, this position could be protected by support the stock formed just below $70 back in July.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ANF or JWN.
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