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Duke Energy (NYSE: DUK) shares are trading higher after the company reported a first-quarter profit of $465 million, or 37 cents per share. DUK's adjusted profit came in at 30 cents per share, in line with Wall Street estimates, while the company pulled in revenue of $3.34 billion during the quarter. above analysts' expected revenue of $3.25 billion. If you think that the stock 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 DUK.After hitting a one-year high of $20.97 last May, the stock hit a one-year low of $16.91 in August. DUK opened this morning at $19.00. So far today the stock has hit a low of $18.80 and a high of $19.20. As of 12:20, DUK is trading at $19.01, up 34 cents (1.9%), which is a huge move for this stock. The chart for DUK looks neutral and deteriorating slightly, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $17.50 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. For this particular trade, we will make a 16.3% return in just five and a half months as long as DUK is above $17.50 at October expiration. Duke would have to fall by more than 7% before we would start to lose money. Learn more about this type of trade here.
DUK hasn't been below $16.90 at all in the past year and has shown support around $18 recently. This trade could be risky if the demand for energy falls off some in the coming months, but even if that happens, that position could be protected by support the stock might find from its 50-day moving average, which is currently just below $18.
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 DUK.
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Reader Comments (Page 1 of 1)
5-02-2008 @ 3:01PM
Becktemba said...
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5-02-2008 @ 5:15PM
Michael Schneider said...
Actually, Duke did beat estimates even with the adjusted earnings as AP reports that the adjusted earnings were 35 cents a share vs. 30 cents last year (adjusted also) and 30 cents expected- a good quarter for them. Duke's dividend at 4.8% is also a plus.
For a free list of some good utility stocks that topped earnings expectations by a good amount this quarter see just posted item in the Spotlight section (top, right) at http://www.Barrelomoney.com.