State Street (NYSE: STT - option chain) shares are moving higher today despite the markets being in the toilet again. This could be because STT is one of the companies that are getting cash from the government. STT will receive a $2 billion cash injection from the federal government in return for non-voting senior preferred stock. 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 STT.STT opened this morning at $40.88. So far today the stock has hit a low of $40.63 and a high of $44.93. As of 12:20, STT is trading at $41.61, up 0.38 (0.9%). The chart for STT looks neutral and S&P gives STT a 3 STARS (out of 5) hold 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 leverages nice returns. For this particular trade, we will make an 8.7% return in just ten weeks as long as STT is above $25 at January expiration. State Street would have to fall by more than 39% before we would start to lose money. Learn more about this type of trade here.
STT hasn't been below $29 at all in the past year and has shown support around $40 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 STT.
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