Baxter International (NYSE: BAX - option chain) stock is trading lower today after the company announced this morning it expects EPS growth of 11 to 13 percent and sales growth of 7 to 8 percent over the next 5 years. While most other stocks are soaring today, traders are unimpressed and this news is holding BAX back. 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 BAX.This morning, BAX opened at $56.50. So far today the stock has hit a high of $57.05 and a low of $55.51. As of 12:10, BAX is trading at $55.71, down 24 cents (-0.4%). The chart for BAX looks bullish and S&P gives BAX a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $60 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 8.7% return in a month as long as BAX is below $60 at October expiration. Baxter would have to rise by more than 7% before we would start to lose money. Learn more about this type of trade here.
BAX hasn't been above $60 at all since February and shown resistance around $57 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 BAX.
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Reader Comments (Page 1 of 1)
9-17-2009 @ 9:11PM
KKaia said...
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.