GameStop (GME - option chain) stock is trading lower today after retail giant Wal-Mart (WMT) announced price cuts on many top 2009 video games and a $50 Gift Card with a Nintendo Wii console purchase. 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 GME.This morning, GME opened at $23.09. So far today the stock has hit a high of $23.36 and a low of $21.36. As of 12:55, GME is trading at $21.56, down $2.28 (-9.6%). The chart for GME looks bullish and S&P gives GME a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $29 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 7.1% return in four and a half months as long as GME is below $29 at April expiration. GameStop would have to rise by more than 34% before we would start to lose money. Learn more about this type of trade here.
GME hasn't been above $29 since May and has shown resistance around $26 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 GME. He does control positions in WMT.
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