Avis Budget Group (NYSE: CAR - option chain) stock traded lower Wednesday after the company said a proposed offering of $250 million in notes could reduce its earnings per share. 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 CAR.
Wednesday, CAR opened at $12.07. In morning trading, the stock hit a high of $12.46 and a low of $11.94. As of 10:55, CAR was trading at $12.18, down $1.10 (-8.3%). The chart for CAR looks bullish.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $15 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 13.6% return in six weeks as long as CAR is below $15 at November expiration. CAR would have to rise by more than 23% before we would start to lose money.
CAR hasn't been above $14.15 at all in the past year and shown resistance around $13.50 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 CAR.
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