Safeway (NYSE: SWY - option chain) stock is falling today after the company reported a fourth-quarter profit of $338 million, or 79 cents per share, missing analysts' projections of 81 cents per share. The grocery industry is generally expected to be a strong one during tough economic times, but the past few months have been hard on these stocks too. 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 SWY.This morning, SWY opened at $19.83. So far today the stock has hit a low of $18.18 and a high of $19.84. As of 12:10, SWY is trading at $19.00, down $2.12 (-10.0%). The chart for SWY looks neutral and S&P gives SWY 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 $22.50 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 but still leverage nice returns. For this particular trade, we will make an 8.7% return in two months as long as SWY is below $22.50 at May expiration. Safeway would have to rise by more than 18% before we would start to lose money. Learn more about this type of trade here.
SWY hasn't been above $30 since January and shown resistance around $22 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 SWY.
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