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China Unicom (CHU) will sell iPhone

Posted Aug 31st 2009 1:40PM by Brent ArcherBrent Archer RSS Feed
Filed under: Major movement, International markets, Apple Inc (AAPL), China, iPhone, Options, Technical Analysis

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CHU logoChina Unicom (NYSE: CHU - option chain) stock is trading lower Monday even though the company announced Sunday night that it had reached a deal with Apple (NASDAQ: AAPL) to sell the iPhone in China. The news was not enough to carry CHU against the tide of falling Asian markets as an Apple spokeswomen confirmed that CHU will not be the exclusive carrier of the iPhone in China. 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 CHU.

This morning, CHU opened at $14.00. So far today the stock has hit a low of $13.85 and a high of $14.02. As of 11:30, CHU is trading at $13.99, down 44 cents (-3.0%). The chart for CHU looks bearish and S&P gives CHU a negative 2 STARS (out of 5) sell ranking.

For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $17.50 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 13.6% return in four and a half months as long as CHU is below $17.50 at January expiration. CHU would have to rise by more than 25% before we would start to lose money. Learn more about this type of trade here.

CHU hasn't been above $17 at all in the past year and shown resistance around $16 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 CHU.

Tags: AAPL, Apple, China, China Unicom, ChinaUnicom, CHU, inthenews, Investors Observer, InvestorsObserver, iPhone, options

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Last updated: November 24, 2009: 07:56 PM

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