Jacobs Engineering Group (NYSE: JEC - option chain) stock is falling today after the company reported third-quarter earnings last night of $94.90 million or 76 cents per share, on revenue of $2.71 billion. Analysts had expected a profit of 75 cents per share on revenue of $2.83 billion. JEC also reduced its fiscal-2009 EPS guidance to a range between $3.10 and $3.35, down from a previous range between $3.10 and $3.50. Analysts are looking for EPS of $3.29. 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 JEC.This morning, JEC opened at $40.10. So far today the stock has hit a low of $39.62 and a high of $40.86. As of 12:00, JEC is trading at $39.81, down $3.58 (-8.2%). The chart for JEC looks bullish and S&P gives JEC a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $50 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 6.4% return in three months as long as JEC is below $50 at October expiration. Jacobs would have to rise by more than 25% before we would start to lose money. Learn more about this type of trade here.
JEC hasn't been above $50 since January 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 controls bullish hedged positions in JEC. Both the trade above and those positions can expire profitably at the same time.
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