TiVo (NASDAQ: TIVO - option chain) shares are headed higher today after Blockbuster Inc. (NYSE: BBI) announced it will team up with TIVO to deliver movies directly to customers' television sets through TIVO digital video recorders. BBI will also sell TIVO products at its stores and website. 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 TIVO.TIVO opened this morning at $7.48. So far today the stock has hit a low of $7.10 and a high of $7.48. As of 11:20, TIVO is trading at $7.19, up 21 cents (3.0%). The chart for TIVO looks neutral and S&P gives TIVO a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $5 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 a 16.3% return in just five months as long as TIVO is above $5 at August expiration. TIVO would have to fall by more than 29% before we would start to lose money.
TIVO hasn't been below $5 at all since early December and has shown support around $6.30 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TIVO nor BBI.
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