Garmin (NASDAQ: GRMN - option chain) stock is falling today after the company reported a first-quarter profit of $48.5 million, or 24 cents per share, on revenue of $437 million. Analysts had projected a profit of 42 cents per share on revenue of $532 million. 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 GRMN.This morning, GRMN opened at $23.86. So far today the stock has hit a low of $21.31 and a high of $23.86. As of 11:30, GRMN is trading at $21.83, down $3.83 (-14.9%). The chart for GRMN looks bearish and S&P gives GRMN a negative 2 STARS (out of 5) sell ranking.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $30 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 4.2% return in ten weeks as long as GRMN is below $30 at July expiration. Garmin would have to rise by more than 37% before we would start to lose money. Learn more about this type of trade here.
GRMN hasn't been above $30 since October and shown resistance around $26.50 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 GRMN.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Reader Comments (Page 1 of 1)
5-06-2009 @ 8:31PM
Tom said...
It's not really surprising, combined with the economy, and the very competitive GPS market I think it was too be expected. Navigon exited the US GPS market a few days ago for this reason alone.
http://www.enbargain.com