Foot Locker (FL) reports healthy Q2 earnings

Foot Locker (NYSE: FL - option chain) shares are soaring higher today after the company announced yesterday evening that it earned a second-quarter profit of $18 million, or 11 cents per share and well above estimates of 3 cents. Other retail earnings this morning were a mixed bag, as Gap (NYSE: GPS) and Jones Apparel (NYSE: JNY) are rising while Pacific Sunwear (NASDAQ: PSUN) is tanking. This makes me think that the retail sector may not trade as a block for the next few months, but rather on the individual merits of each stock. If you think that FL 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 the stock.

FL opened this morning at $16.40. So far today the stock has hit a low of $14.93 and a high of $16.50. As of 12:05, FL is trading at $15.57, up 0.29 (1.9%). The chart for FL looks neutral and S&P gives FL a neutral 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $10 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 an 8.7% return in five months as long as FL is above $10 at January expiration. Foot Locker would have to fall by more than 35% before we would start to lose money. Learn more about this type of trade here.

FL hasn't been below $9 at all and hasn't been below $10 for more than a few days in the past year. It has shown support around $14 recently.

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 FL.