LG Display Co., Ltd. (NYSE: LPL) stock is falling this morning on news that Philips sold about $1 billion worth of its stake in LPL. The company sold the shares at a discount of 4.8 to 8.1 percent, according to news reports, and the deal will reduce Philips stake in the company to 13.5 percent from 19.9 percent. 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 LPL.
After hitting a one-year low of $15.87 last March, the stock hit a one-year high of $31.29 in November. This morning, LPL opened at $23.22. So far today the stock has hit a low of $21.88 and a high of $23.44. As of 1:10, LPL is trading at $22.44, down $2.14 (-8.7%). The chart for LPL looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bearish hedged play on this stock, I would consider an April 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. For this particular trade, we will make a 12.4% return in one and a half months as long as LPL is below $25 at April expiration. LG Display would have to rise by more than 11% before we would start to lose money.
LPL hasn't been above $25 by more than a few cents since early January and has shown resistance around $24.80 recently. This trade could be risky if the economy bounces back strongly, but even if that happens, this position could be protected by the strong resistance LPL has found just below $25 over the past month. Also helping is the lack of faith that Philips is demonstrating with today's move.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LPL.
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