Big Lots (NYSE: BIG - option chain) shares are rising today after the company posted a second-quarter profit of $28.4 million, or 34 cents per share, on revenue of $1.09 billion. BIG's adjusted profit of 35 cents per share topped analysts' forecasts of 30 cents per share on revenue of $1.08 billion. This amount is up from last year at the same time, when BIG posted EPS of 0.32. 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 BIG.
BIG opened this morning at $25.38. So far today the stock has hit a low of $25.38 and a high of $26.70. As of 11:40, BIG is trading at $25.95, up $1.92 (8.1%). The chart for BIG looks bullish and S&P gives BIG a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a January 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 a 13.6% return in five months as long as BIG is above $20 at January expiration. Big Lots would have to fall by more than 23% before we would start to lose money.
BIG has not been below $20 since July and has shown support around $22.50 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 BIG.
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