Suntech Power Holdings Co. Ltd. (NYSE: STP) shares are rising this morning, extending gains made after Friday's "Buy" reiteration by Calyon Securities and helped along by higher oil prices. Coming up later this month is the annual U.S. State of the Union Address, and alternative energy is expected to be a major topic. The industry as a whole could be buoyed by investors speculating that there may be new initiatives for that industry. 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 STP.After hitting a one-year low of $31.41 in June, the stock hit a one-year high of $90.00 this month. STP opened this morning at $68.58. So far today the stock has hit a low of $67.72 and a high of $70.00. As of 10:55, STP is trading at $69.62, up $2.81 (4.2%). The chart for STP looks bullish but deteriorating, 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 February bull-put credit spread below the $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 6.4% return in just 5 weeks as long as STP is above $50 at February expiration. SunTech would have to fall by more than 28% before we would start to lose money.
STP hasn't been below $50 since October and has shown support around $60 recently. This trade could be risky if energy prices relax if the economy keeps weakening, but even if that happens, this position could be protected by general positive investor sentiment about the prospects of alternative energy.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in STP.
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