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Big Lots (NYSE: BIG - option chain) shares are diving today despite reporting an 11% increase in second-quarter profit. The company posted earnings of 32 cents per share on sales of $1.1 billion, while analysts expected 27 cents per share on revenue of $1.1 billion. However, it warned that same store sales may not grow too much in the 3rd and 4th quarters. 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 BIG.This morning, BIG opened at $32.56. So far today the stock has hit a low of $30.21 and a high of $32.60. As of 12:45, BIG is trading at $31.69, down $1.37 (-4.1%). The chart for BIG looks neutral and S&P gives BIG a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $35 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 an 8.7% return in 4 weeks as long as BIG is below $35 at September expiration. Big Lots would have to rise by more than 11% before we would start to lose money. Learn more about this type of trade here.
BIG hasn't been above $35 at all in the past year and has shown resistance around $34.90 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 BIG.
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