Dick's Sporting Goods (NYSE: DKS - option chain) shares are way higher today after the company announced yesterday evening that it expects fourth-quarter profits to reach at least the midpoint of its prior forecast. It had previously forecast earnings of 49 to 56 cents per share, while analysts are projecting a profit of 51 cents per share. Not too many companies have been hitting their guidance recently, so since DKS has the confidence to up its numbers, investors are taking this as a very good sign. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on DKS.
DKS opened this morning at $12.12. So far today the stock has hit a low of $12.12 and a high of $13.81. As of 12:15, DKS is trading at $13.20, up 1.94 (17.2%). The chart for DKS looks neutral and S&P gives DKS a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $7.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put 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 11.1% return in just four and a half months as long as DKS is above $7.50 at June expiration. Dick's would have to fall by more than 43% before we would start to lose money. Learn more about this type of trade here.
DKS hasn't been below $9 at all in the past year and has shown support around $11 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 DKS.
Struggling Playboy outsources business ops
J. Crew earnings preview: A strong Q3 all buttoned up?
Twitter to make acquisitions, generate revenue in 2010
