Constellation Brands (NYSE: STZ - option chain) shares are rising today even though the markets are down sharply after the company reported second-quarter earnings. Adjusted profits were $120 million, or 54 cents per share, on revenue of $877 million, while analysts were expecting a profit of 41 cents per share on revenue of $834 million. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on STZ.STZ opened this morning at $15.70. So far today the stock has hit a low of $15.20 and a high of $16.19. As of 11:35, STZ is trading at $15.73 up 58 cents (3.8%). The chart for STZ looks bullish and S&P gives STZ a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $12.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put 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 13.6% return in six and a half months as long as STZ is above $12.50 at April expiration. STZ would have to fall by more than 20% before we would start to lose money. Learn more about this type of trade here.
STZ has not been below $12.50 since July and has shown support around $14.30 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 STZ.
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