Tempur Pedic (NYSE: TPX - option chain) shares are rising today after the company posted a second-quarter profit of $16.86 million or 22 cents per share, topping analysts' projections of 18 cents per share. 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 TPX.TPX opened this morning at $13.04. So far today the stock has hit a low of $13.18 and a high of $14.09. As of 11:20, TPX is trading at $14.00 up 0.96 (7.4%). The chart for TPX looks neutral and S&P gives TPX a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $10 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 an 8.7% return in just two months as long as TPX is above $10 at September expiration. TPX would have to fall by more than 28% before we would start to lose money. Learn more about this type of trade here.
TPX has not been below $10 since May and has shown support around $10.25 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 TPX.
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