Corning (NYSE: GLW - option chain) shares are nose-diving today after the company reduced its third-quarter earnings forecast to a range of 43 to 45 cents a share, from a previous estimate of 48 to 51 cents per share, while analysts were looking for earnings of 49 cents per share. 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 GLW.This morning, GLW opened at $17.74. So far today the stock has hit a low of $17.41 and a high of $18.20. As of 12:30, GLW is trading at $17.49, down $2.01 (-10.3%). The chart for GLW looked bullish before today and S&P gives GLW a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $22.50 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 and a half months as long as GLW is below $22.50 at January expiration. Corning would have to rise by more than 28% before we would start to lose money. Learn more about this type of trade here.
GLW hasn't been above $22.50 since June and has shown resistance around $21.50 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 GLW.
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Reader Comments (Page 1 of 1)
9-17-2008 @ 11:01AM
Jack said...
GLW stock has fooled me many times over. It was offered $17/share, it turned it down since it was too low. But then why is the stock around $15/share. Who controls what it is worth?