Tiffany & Co (NYSE: TIF - option chain) shares are falling today after the company forecast 2008 EPS in a range between $2.30 and $2.50, below analysts' estimates of $2.58. TIF blamed weak consumer spending for the forecast. 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 TIF.This morning, TGT opened at $18.66. So far today the stock has hit a low of $18.61 and a high of $21.50. As of 12:35, TIF is trading at $20.45, down $0.38 (-1.8%). The chart for TIF looks neutral and S&P gives TIF a 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $30 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 an 8.7% return in three months as long as TIF is below $30 at February expiration. Tiffany would have to rise by more than 46% before we would start to lose money. Learn more about this type of trade here.
TIF hasn't been above $45 since early October and shown resistance around $28 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 TIF.
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