LDK Solar (NYSE: LDK - option chain) stock is falling today after the company cut its fourth-quarter revenue forecast to $425 to $435 million, down from a previous estimate of $555 to $565 million. Analysts are looking for revenue of $540 million. 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 LDK.This morning, LDK opened at $13.53. So far today the stock has hit a low of $13 and a high of $13.95. As of 12:05, LDK is trading at $13.29, down $1.55 (-10.4%). The chart for LDK looks neutral and S&P gives LDK a neutral 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 $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 it will but still leverages nice returns. For this particular trade, we will make an 8.7% return in six weeks as long as LDK is below $17.50 at February expiration. LDK would have to rise by more than 31% before we would start to lose money. Learn more about this type of trade here.
LDK hasn't been above $17.50 at all in since early November and shown resistance around $15 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 LDK.
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