Medtronic (NYSE: MDT - option chain) shares are way lower today after the company posted a second-quarter profit of $571 million, or 51 cents per share. The company's adjusted profit of 67 cents per share missed analysts' estimates of 71 cents per share. MDT also lowered their fiscal-2009 EPS forecast by about 3% on both the high and low ends. None of this is helping the stock today. 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 MDT.This morning, MDT opened at $34.49. So far today the stock has hit a low of $31.25 and a high of $35.48. As of 12:30, MDT is trading at $32.24, down $4.18 (11.5%). The chart for MDT looks neutral and S&P gives MDT a 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $42.50 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 leverages nice returns. For this particular trade, we will make a 4.2% return in two months as long as MDT is below $42.50 at January expiration. Medtronic would have to rise by more than 31% before we would start to lose money. Learn more about this type of trade here.
MDT hasn't been above $45 since early October and shown resistance around $41 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 MDT.
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