Baidu.com (NASDAQ: BIDU - option chain) shares are rising today after a market research firm reported that the company accounted for 74.1 % of China internet search queries in the Q1 2009, up from 72% in the fourth quarter of 2008. 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 BIDU.BIDU opened this morning at $268.19. So far today the stock has hit a low of $266.80 and a high of $184.77. As of 11:40, BIDU is trading at $283.78 up $19.98 (7.6%). The chart for BIDU looks bearish and S&P gives BIDU a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $210 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 5.3% return in just seven weeks as long as BIDU is above $210 at July expiration. Baidu would have to fall by more than 26% before we would start to lose money. Learn more about this type of trade here.
BIDU has not been below $210 since April and has shown support around $229 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 BIDU.
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