Talbots (NYSE: TLB - option chain) stock is trading lower today after the company posted a Q2 loss of 0.45 per share, which came in better than analysts' expected 0.52 loss. However, revenues of $304M were lower than the $309M that was anticipated. 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 TLB.This morning, TLB opened at $7.80. So far today the stock has hit a high of $7.81. As of 11:50, TLB is trading near the day's low at $6.84, down 27 cents (-3.8%). The chart for TLB looks bullish.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $10 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 an 11.1% return in four and a half months as long as TLB is below $10 at January expiration. Talbots would have to rise by more than 44% before we would start to lose money.
TLB hasn't been above $10 at all since October and shown resistance around $7.50 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TLB.
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