Wendy's International Inc. (NYSE: WEN) stock is trading lower this morning after the company posted a fourth-quarter profit that failed to meet analysts' expectations. Discounting a one-time $6.5 million charge, WEN made 21 cents a share on revenue of $596 million, below analyst estimates of 23 cents a share on $592 million. 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 WEN.After hitting a one-year high of $42.22 in May, the stock hit a one-year low of $22.48 last month. This morning, WEN opened at $24.16. So far today the stock has hit a low of $24.15 and a high of $25.00. As of 10:35, WEN is trading at $24.20, down $0.98 (-3.9%). The chart for WEN looks neutral and improving, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $25 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. This particular trade will make an 11.1% return in 2 weeks as long as WEN is below $25 at February expiration. Wendy's would have to rise by more than 3% before we would start to lose money.
WEN has been above $25 as recently as last week, but is down strongly this morning after its earnings. This trade could be risky if the market as a whole rebound in the next two weeks, but even if that happens, this position could be protected by resistance WEN might find when investors remember this morning's announcement.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in WEN.
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