Smith & Wesson Holding Corp. (NASDAQ: SWHC) stock is falling this morning after the company cut its outlook for the second time since late October, forecasting this morning a profit of 40 cents per share for the year ending April 30. The company had previously estimated 63 cents per share in profit. 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 SWHC.

After hitting a one-year high of $22.80 in August, the stock hit a one-year low of $9.51 yesterday, but is well below that number today. This morning, SWHC opened at $7.02. So far today the stock has hit a low of $6.68 and a high of $7.25. As of 10:45, SWHC is trading at $7.14, down $2.78 (-27.9%). The chart for SWHC looks bearish and steady.

For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $10 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 6 and a half months as long as SWHC is below $10 at June expiration. Smith & Wesson would have to rise by more than 40% before we would start to lose money.

SWHC has been above $10 as recently as yesterday, but has fallen sharply this morning and shown resistance around $10.10 over the past few weeks. This trade could be risky if the stock bounces back strongly, but with drops like today's and the one in October, investors will probably be cautious with this stock for the coming months.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in SWHC.