Sun Microsystems (JAVA) falls on economic concerns

Sun Microsystems Inc. (NASDAQ: JAVA) stock is declining with the rest of the tech sector as economic indicators today have investors worried once again that the economy is headed for a recession. The Commerce Department reported that retail sales dipped by 0.6% in February, below economists' predictions of a 0.2% gain. California research firm RealtyTrac Inc. also reported that home foreclosures in February rose 59.8% over the year-ago period. Plus, some pretty bad news came from the Carlyle Group, too. 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 JAVA.

After hitting a one-year high of $26.04 last March, the stock hit a one-year low of $14.20 in January. This morning, JAVA opened at $16.54. So far today the stock has hit a low of $16.35 and a high of $16.74. As of 12:35, JAVA is trading at $16.61, down %0.35 (-2.1%). The chart for JAVA looks neutral and improving, 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 July bear-call credit spread above the $20 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 14.1% return in four months as long as JAVA is below $20 at July expiration. Sun would have to rise by more than 20% before we would start to lose money.

JAVA hasn't been above $20 since December and has shown resistance around $17.50 recently. This trade could be risky if the economy bounces back, but even if that happens, this position could be protected by resistance JAVA might find around $18, where it has topped out over the past month.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in JAVA.