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Lennar (NYSE: LEN - option chain) shares are falling today after the company reported had significantly smaller losses in this year's third quarter this year than last. EPS missed estimates by four cents but revenues beat estimates as cost-cutting measures helped the bottom line. Even as revenues were less than half of last year's figure, the EPS went from a 3.25 loss to just 0.56 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 LEN or one of the other home-builders that has yet to report.This morning, LEN opened at $13.60. So far today the stock has hit a low of $12.95 and a high of $14.30. As of 1:00, LEN is trading at $12.95, down $0.79 (-5.8%). The chart for LEN looks bullish and S&P gives LEN a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $17.50 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 nine weeks as long as LEN is below $17.50 at November expiration. Lennar would have to rise by more than 34% before we would start to lose money. Learn more about this type of trade here.
LEN hasn't been above $35 since late May and has shown resistance around $17 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 LEN.
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