Nordstrom (NYSE: JWN - option chain) shares are sharply higher today after the company reported a fourth-quarter profit of $68 million, or 31 cents per share, beating analysts' estimates of 30 cents per share. This earnings report shows slowing sales like almost all retailers, but management claims it is keeping inventories at reasonable levels and controlling costs. It seems to me that the upper crust of retailers are hanging in better than the mid-range stores. 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 JWN.JWN opened this morning at $12.55. So far today the stock has hit a low of $12.41 and a high of $13.38. As of 11:40, JWN is trading at $12.86, up 1.53 (13.5%). The chart for JWN looks bearish and S&P gives JWN a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $10 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 8.7% return in just four weeks as long as JWN is above $10 at March expiration. JWN would have to fall by more than 22% before we would start to lose money. Learn more about this type of trade here.
JWN hasn't been below $10 since November and has shown support around $11 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Brent 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 JWN.
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