Weyerhaeuser (NYSE: WY - option chain) stock is falling today after the company cut its quarterly dividend to 5 cents from 25 cents. In addition, Weyerhaeuser will defer timber harvest and close some facilities in order to contain costs. 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 WY.
This morning, WY opened at $28.64. So far today the stock has hit a low of $28.51 and a high of $29.42. As of 10:40, WY is trading at $28.96, down $1.03 (-3.4%). The chart for WY looks neutral and S&P gives WY a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $38 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 11.1% return in three and a half months as long as WY is below $38 at October expiration. WY would have to rise by more than 31% before we would start to lose money. Learn more about this type of trade here.
WY hasn't been above $38 since April and shown resistance around $36 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 WY.
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