Callaway Golf (NYSE: ELY - option chain) stock is falling today after the company said it will reduce its quarterly dividend to 1 cent per share. The dividend had been at 7 cents per share. 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 ELY.This morning, ELY opened at $6.24. So far today the stock has hit a low of $6.10 and a high of $6.47. As of 12:25, ELY is trading at $6.26, down $1.02 (-14.1%). The chart for ELY looks bearish and S&P gives ELY a negative 2 STARS (out of 5) sell ranking.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $7.50 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 three months as long as AUY is below $7.50 at August expiration. callaway would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.
ELY has shown resistance around $7.40 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 ELY.
Nuclear power is on the comeback trail
Apple backs AT&T in continuing spat with Verizon
Closing Bell: The recession is still over, still... do you feel it?
