Rio Tinto (NYSE: RTP - option chain) stock is declining this morning on reports that Chinese authorities could use a new antitrust law to block the company's planned joint venture with BHP Billiton (NYSE: BHP). 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 RTP.This morning, RTP opened at $193.00. So far today the stock has hit a low of $188.52 and a high of $194.00. As of 11:45, RTP is trading at $190.15, down $14.29 (-7.0%). The chart for RTP looks neutral and S&P gives RTP a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $240 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 5.3% return in five weeks as long as RTP is below $240 at July expiration. Rio Tinto would have to rise by more than 26% before we would start to lose money. Learn more about this type of trade here.
RTP hasn't been above $240 since July and shown resistance around $9.70 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 RTP or BHP.
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