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SanDisk (NASDAQ: SNDK - option chain) shares are dropping today after the company agreed to sell part of its capacity in a joint venture with Toshiba. For $1 billion, Toshiba will buy 30% of the manufacturing capacity in the joint venture. SNDK is getting trashed today as investors presumably don't like the idea of selling part of the company in the middle of an economic storm, when values might not be at their highest. SanDisk also reports its Q3 earnings after the close today, with analysts expecting a 27 cents per share loss. 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 SNDK.This morning, SNDK opened at $15.81. So far today the stock has hit a low of $13.83 and a high of $15.85. As of 12:15, SNDK is trading at $14.33, down $1.18 (-7.6%). The chart for SNDK looks neutral and S&P gives SNDK a 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 $25 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 one month as long as SNDK is below $25 at November expiration. SanDisk would have to rise by more than 76% before we would start to lose money. Learn more about this type of trade here.
SNDK has not been above $25 since June and has shown resistance around $24 over the past month.
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 SNDK.
SNDK has not been above $25 since June and has shown resistance around $24 over the past month.
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 SNDK.
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