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State Street (NYSE: STT - option chain) stock is falling today after the company reported a second-quarter loss of $3.3 billion or $7.12 per share, hurt by charges related to the consolidation of the asset-backed commercial paper conduits onto the company's balance sheet and its TARP repayment. Excluding one-time items, STT earned 79 cents per share, missing analysts' estimates of 97 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 STT.This morning, STT opened at $48.81. So far today the stock has hit a low of $45.98 and a high of $48.77. As of 11:45, STT is trading at $46.91, down $1.90 (3.9%). The chart for STT looks bullish and S&P gives STT a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $60 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 four months as long as STT is below $60 at November expiration. State Street would have to rise by more than 30% before we would start to lose money. Learn more about this type of trade here.
STT hasn't been above $60 since September and shown resistance around $49 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 STT.
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