BB&T (NYSE: BBT - option chain) stock is trading lower today after the company reported third-quarter earnings this morning, posting a profit of $152 million or 23 cents per share. While this beat the expected profit of 22 cents per share, the stock is declining in early trading as investors appear concerned about BBT's $709 million in bad loan provisions during the quarter, which is nearly double the total of the year-ago period. 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 BBT.This morning, BBT opened at $27.38. So far today the stock has hit a high of $27.45 and a low of $26.79. As of 11:30, BBT is trading at $26.95, down $1.30 (-4.6%). The chart for BBT looks bullish and S&P gives BBT a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a December 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 17.6% return in two months as long as BBT is below $30 at December expiration. BBT would have to rise by more than 10% before we would start to lose money. Learn more about this type of trade here.
BBT hasn't been above $30 at all since December 2008 and has shown resistance around $29.80 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 controls a bullish position in BBT with a longer term than the trade above.
Why isn't Bank of America updating its shareholders on CEO situation?
Before the bell: Futures sharply lower on Dubai's debt problems
Will Rich Ross really have a positive impact on Disney's movie operations?
Add your comments