Expeditors International of Washington (NASDAQ: EXPD - option chain) stock traded lower Tuesday after the company reported a third-quarter profit of 27 cents per share, missing analysts' forecasts of 29 cents 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 EXPD.
Tuesday, EXPD opened at $32.45. In morning trading, the stock hit a high of $32.53 and a low of $31.69. As of 11:30, EXPD was trading at $32.34, down $1.10 (-3.5%). The chart for EXPD looks bullish and S&P gives EXPD a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $40 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 6.4% return in four months as long as EXPD is below $40 at February expiration. EXPD would have to rise by more than 23% before we would start to lose money.
EXPD hasn't been above $40 by more than 50 cents in the past year and has shown resistance around $37 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 EXPD.
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