Goldman Sachs (GS) Q3 earnings don't impress

Goldman Sachs (NYSE: GS - option chain) shares are dropping today after the company announced its Q3 earnings this morning. While GS beat analyst estimates of 1.71 EPS by 10 cents, the 51% drop in revenues was larger than expected. The announcement was not an awful sign for GS, but with all the surrounding trouble in the financial sector, it was not what investors needed to see to send the stock higher. Currently, GS is well off its lows, but still down a significant chunk. 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 GS.

This morning, GS opened at $118.00. So far today the stock has hit a low of $116.13 and a high of $135.00. As of 12:25, GS is trading at $130.98, down $4.52 (-3.3%). The chart for GS looks bearish, while S&P gives the stock a 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 $175 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 4.2% return in five weeks as long as GS is below $175 at October expiration. Goldman Sachs would have to rise by more than 33% before we would start to lose money. Learn more about this type of trade here.