Las Vegas Sands Corp. (NYSE: LVS) shares are trading higher today, even though the company reported an adjusted fourth-quarter profit of $71.1 million, or 20 cents per share, well below analyst estimates of 35 cents per share. The company blamed high construction costs on multiple new resorts for the lower earnings. However, its Las Vegas Strip model of casino-resorts is paying off in Macau, as revenues at its Macau resort increased 46% over the previous year to $10.3 billion in 2007. Due to the fact that LVS sank 7% yesterday on a profit warning from an industry analyst, investors see this morning's earnings as not so bad. Plus, they see something to be excited about in the Macau resort's performance, judging by this morning's jump in stock price. 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 LVS.
After hitting a one-year high of $148.76 in October, the stock hit a one-year low of $70.70 last month. LVS opened this morning at $84.74. So far today the stock has hit a low of $84.74 and a high of $90.19. As of 11:05, LVS is trading at $88.61, up $7.16 (8.8%). The chart for LVS looks bearish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider a March 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 6.4% return in just seven weeks as long as LVS is above $65 at March expiration. LVS would have to fall by more than 26% before we would start to lose money.
LVS hasn't been below $70 at all in the past year and has shown support around $79 recently. This trade could be risky if the economy continues to head into the toilet, but even if that happens, this position could be protected by the support the stock might find around $70, where LVS bottomed twice in the past year.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in LVS.
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