Garmin (NASDAQ: GRMN - option chain) shares are trading higher today after the company posted a third-quarter profit of $171.2 million, or 82 cents per share. GRMN's adjusted profit of 87 cents per share beat analysts' estimates of 84 cents per share. Garmin has fallen from well over $100 to the low $20s in the past year, so even though the company's forecast was not too hot, the stock probably didn't deserver to be punished further. 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 GRMN.
GRMN opened this morning at $22.30. So far today the stock has hit a low of $22.10 and a high of $23.45. As of 12:25, GRMN is trading at $22.34, up $0.91 (4.2%). The chart for GRMN looks bearish and S&P gives GRMN a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $15 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 4.2% return in just three weeks as long as GRMN is above $15 at November expiration. Garmin would have to fall by more than 32% before we would start to lose money. Learn more about this type of trade here.
GRMN hasn't been below $19 at all in the past year and has shown support around $20 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 GRMN.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
