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Eastman Kodak (NYSE: EK - option chain) stock is trading lower today after the company announced yesterday evening that it will offer $300 million of convertible senior notes due 2017 in a private placement to qualified institutional buyers. Additionally, the private equity fund Kohlberg Kravis Roberts & Co. will buy up to $400 million in notes due in 2017 in exchange for two seats on EK's board of directors. 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 EK.This morning, EK opened at $6.34. So far today the stock has hit a high of $6.34 and a low of $5.81. As of 12:15, EK is trading at $6.16, down 52 cents (-7.8%). The chart for EK looks bearish and S&P gives EK 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 $9 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 months as long as EK is below $9 at January expiration. Kodak would have to rise by more than 46% before we would start to lose money. Learn more about this type of trade here.
EK hasn't been above $9 at all since November and shown resistance around $7 recently. However, EK has more than doubled in value in the past two months.
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 EK.
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