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Garmin Ltd. (NASDAQ: GRMN) stock is falling lower today on news that SiRF Technology (NASDAQ: SIRF), whose chips are used in GRMN's personal navigation devices, reported a fourth-quarter profit that missed analyst expectations. SIRF earned 8 cents a share excluding one-time items in the quarter, well below analyst estimates of 32 cents a share. SIRF blamed a seasonal decline in demand for the disappointing profit, which could be a bad sign for GRMN. 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 GRMN.After hitting a one-year low of $50.01 in March, the stock hit a one-year high of $125.68 in October. This morning, GRMN opened at $65.96. So far today the stock has hit a low of $64.26 and a high of $66.23. As of 11:00, GRMN is trading at $65.00, down $4.66 (-6.7%). The chart for GRMN looks bearish but improving slightly, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a March bear-call credit spread above the $90 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 a 5.3% return in seven weeks as long as GRMN is below $90 at March expiration. Garmin would have to rise by more than 38% before we would start to lose money.
GRMN hasn't been above $90 since December and has shown resistance around $82 recently. This trade could be risky if the economy as a whole regains its footing, but even if that happens, this position could be protected by resistance GRMN might find at its 200 day moving average, which is currently around $87.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in GRMN or SIRF.
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