Honda Motor (NYSE: HMC - option chain) shares are slightly higher today after a US executive said that despite expected weaknesses in the U.S. auto market, HMC should be able to achieve a slight increase in sales in 2009 on the strength of its hybrid and fuel efficient models. This is good news for the company, but not that great, since recent sales the past few years have not been so hot. The slight growth will be compared to a lower baseline, but it is still better than a sales decline. 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 HMC.HMC opened this morning at $30.06. So far today the stock has hit a low of $30.00 and a high of $31.18. As of 12:35, HMC is trading at $30.05, up 0.05 (0.2%). The chart for HMC looks bearish and S&P gives HMC a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $25 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 16.3% return in just four months as long as HMC is above $25 at January expiration. Honda would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.
HMC hasn't been below $27 at all in the past year and has shown support around $30 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 HMC.
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