Coinstar (NASDAQ: CSTR - option chain) shares are rising today after the company signed a supply deal with movie studio Paramount Pictures, a unit of Viacom (NYSE: VIA, VIA.B). Under the deal, CSTR's subsidiary Redbox will stock its $1-per-night DVD rental kiosks with Paramount Pictures DVDs. 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 CSTR.CSTR opened this morning at $32.55. So far today the stock has hit a low of $32.51 and a high of $34.49. As of 11:40, CSTR is trading at $33.12 up 83 cents (2.5%). The chart for CSTR looks neutral and S&P gives CSTR 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 five months as long as CSTR is above $25 at January expiration. Coinstar would have to fall by more than 24% before we would start to lose money. Learn more about this type of trade here.
CSTR has not been below $24.40 (the break-even point for this trade) since March and has shown support around $30 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 CSTR or Viacom.
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