Cal-Maine Foods (NASDAQ: CALM - option chain) stock is trading slightly lower today after the company announced Q1 results this morning, posting a loss of 0.16 per share. Total losses for the egg farmer were $3.8M. CALM, which has had a 2% yield over the past year will skip paying a dividend this quarter because of the loss. 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 CALM.This morning, CALM opened at $25.60. So far today the stock has hit a high of $27.89 and a low of $24.90. As of 11:55, CALM is trading at $27.72, down 6 cents (-0.2%). The chart for CALM looks bearish.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $30 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 4.2% return in three weeks as long as CALM is below $30 at October expiration. Cal-Maine would have to rise by more than 8% before we would start to lose money. Learn more about this type of trade here.
CALM hasn't been above $30 by more than a few cents since July and shown resistance around $29.50 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 CALM.
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