Kimberly-Clark (NYSE: KMB) shares are falling today after the company lowered its second-quarter and full-year outlook well below analysts' expectations yesterday evening. The company said inflation costs would reach $900 million, double the company's original estimate. 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 KMB.After hitting a one-year high of $71.16 in October, the stock has hit a new one-year low of $50.42 today. This morning, KMB opened at $54.25. So far today the stock has hit a low of $50.42 and a high of $57.68. As of 12:50, KMB is trading at $55.87, down $2.93 (-5.0%). The chart for KMB looks neutral and slightly improving while S&P gives KMB a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $60 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 14.9% return in three months as long as KMB is below $60 at October expiration. Kimberly-Clark would have to rise by more than 7% before we would start to lose money. Learn more about this type of trade here.
KMB has been above $60 as recently as early July, but has shown resistance around $60 recently. This trade could be risky if the company's actual earnings (due out on 7/24) are a positive surprise, but after today's announcement that seems unlikely.
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 KMB.
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