Deutsche Bank (DB) Q4 loss drags on financial sector

Deutsche Bank (NYSE: DB - option chain) stock is falling today after the company reported an estimated fourth-quarter loss of 4.8 billion euros ($6.4 billion). The bad quarter will force DB to take a loss for fiscal year 2008. DB blamed weak credit markets and another wave of write-downs for the loss. The news from DB and some other bad news in the industry is hitting the financial sector hard as a whole, with stalwart Bank of America (NYSE: BAC) down almost 5% today and more than 20% for the week. 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 DB.

This morning, DB opened at $28.95. So far today the stock has hit a low of $28.68 and a high of $29.52. As of 12:30, DB is trading at $29.05, down $2.85 (-8.9%). The chart for DB looks neutral and S&P gives DB a 3 STARS (out of 5) hold ranking.

For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $40 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 a 6.3% return in three months as long as DB is below $40 at April expiration. Deutsche Bank would have to rise by more than 37% before we would start to lose money. Learn more about this type of trade here.

DB has been above $40 as recently as the end of December but has 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 DB nor BAC.