Textron (TXT) revises forecast downward

Textron (NYSE: TXT - option chain), the aircraft company that makes Cessna and Bell, among others, is down steeply today after the company cut its fourth-quarter adjusted EPS forecast to 30 cents to 40 cents, from a previous estimate of 80 cents to 90 cents. Analysts are expecting an adjusted profit of 83 cents per share. 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 TXT.

This morning, TXT opened at $13.55. So far today the stock has hit a low of $12.13 and a high of $14.35. As of 3:34. TXT is trading at $12.27, down $3.11 (-20. 27%). The chart for TXT looks bullish and S&P gives TXT a positive 4 STARS (out of 5) buy ranking.

For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $17.50 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 leverage nice returns. For this particular trade, we will make an 8.7% return in four months as long as TXT is below $17.50 at February expiration. Textron would have to rise by more than 41% before we would start to lose money.

TXT hasn't been above $17.50 since early November and shown resistance around $16 recently.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TXT.