Avon Products (NYSE: AVP - option chain) shares are rising today after the company reported a second-quarter profit this morning of $82.9 million, or 19 cents per share. Excluding one-time items, AVP earned 38 cents per share, beating analysts' expectations of 34 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 AVP.AVP opened this morning at $30.31. So far today the stock has hit a low of $14.40 and a high of $32.77. As of 11:40, AVP is trading at $32.36 up $2.62 (8.8%). The chart for AVP looks neutral and S&P gives AVP a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $25 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 a 13.6% return in six months as long as AVP is above $25 at January expiration. Avon would have to fall by more than 22% before we would start to lose money.
AVP has not been below $25 since May and has shown support around $25 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AVP.
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