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BB&T (NYSE: BBT - option chain) shares are rising today after the company announced that their deal to acquire Colonial BancGroup will not hurt BB&T's earnings due to a loss-sharing agreement with the FDIC. According to reports, the worst that could happen for BBT is a loss on $500M. 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 BBT.BBT opened this morning at $27.11. So far today the stock has hit a low of $27.47 and a high of $26.89. As of 11:20, BBT is trading at $27.47 up $1.04 (3.9%). The chart for BBT looks neutral and S&P gives BBT a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $20 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 11.1% return in four months as long as BBT is above $20 at December expiration. BB&T would have to fall by more than 27% before we would start to lose money. Learn more about this type of trade here.
BAC has not been below $19.70 (the break-even point on this trade) since April and has shown support around $23 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 BBT.
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