Bank of New York Mellon (NYSE: BK - option chain) stock is lower today after the company reported a second-quarter profit this morning of $176 million, or 15 cents per share. Excluding one-time items, BK earned 23 cents per share, missing analysts' estimates of 53 cents per share. BK also announced its quarterly dividend of 0.09 per share down 62% from the previous 0.24. 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 BK.This morning, BK opened at $27.55. So far today the stock has hit a low of $26.48 and a high of $27.67. As of 11:40, BK is trading at $26.89, down $2.22 (-7.6%). The chart for BK looks bullish and S&P gives BK a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $31 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 9.1% return in two months as long as BK is below $31 at September expiration. BK would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
BK hasn't been above $31 since April 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 does not own nor control positions in BK.
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Reader Comments (Page 1 of 1)
7-22-2009 @ 4:10PM
BHarrison said...
Hmmmm . . . the question arises as to whether they have "slashed the bonuses paid to the employees who managed the company into this financial mess" and whether they have fired the management personnel who orchestrated the financial demise of the corporation. If the stockholders suffer from the fraudulent incompetence of managment, surely management should be scourged of these incompetent fools and/or fraudsters.