The Hershey Co (NYSE: HSY) shares are trading higher today after the company reported a second-quarter profit of $41.5 million, or 18 cents a share, helped by a price increase and more efficient production lines. 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 HSY.
After hitting a one-year high of $48.77 in August, the stock hit a one-year low of $32.31 earlier this month. HSY opened this morning at $35.55. So far today the stock has hit a low of $35.32 and a high of $36.81. As of 1:00, HSY is trading at $36.40, up $1.45 (4.1%). The chart for HSY looks bearish and improving, while S&P gives the stock a bearish 1 Star (out of 5) Strong Sell rating.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $30 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 7.5% return in just four months as long as HSY is above $30 at November expiration. Hershey would have to fall by more than 17% before we would start to lose money. Learn more about this type of trade here.
HSY hasn't been below $32 at all in the past year and has shown support around $32 recently. This trade could be risky if the economic situation continues to deteriorate, but even if that happens, this position could be protected by the support the stock might find near its year low just above $32.
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 HSY.
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