AMR Corp (NYSE: AMR - option chain) stock is falling today after the company reported a fourth-quarter loss of $340 million, or $1.22 per share. Excluding one-time items, AMR lost 77 cents per share, which was worse than analysts' projections of a 73 cents per share loss. 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 AMR.This morning, AMR opened at $10.50. So far today the stock has hit a low of $7.37 and a high of $10.50. As of 12:10, AMR is trading at $8.17, down $2.29 (-21.9%). The chart for AMR looks neutral and S&P gives AMR a 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $15 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 6.4% return in four months as long as AMR is below $15 at May expiration. AMR would have to rise by more than 82% before we would start to lose money. Learn more about this type of trade here.
AMR hasn't been above $15 in almost a year and shown resistance around $12.50 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 AMR.
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Reader Comments (Page 1 of 1)
1-21-2009 @ 2:05PM
Listingtoport said...
This stock is going back to below $3.00. Sel, sell, sell.