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Continental Airlines (CAL - option chain) shares are rising today after the company announced this morning that its January traffic rose 8.5 percent from January of 2009 to 6.98 billion revenue passenger miles. 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 CAL.CAL opened this morning at $19.77. So far today the stock has hit a low of $19.43 and a high of $19.97. As of 11:50, CAL is trading at $19.78 up 49 cents (2.5%). The chart for CAL looks bullish and S&P gives CAL a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $11 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 a 6.1% return in five months as long as CAL is above $11 at June expiration. Continental would have to fall by more than 44% before we would start to lose money. Learn more about this type of trade here.
CAL has not been below $11 by more than a few cents since July and has shown support around $18.30 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 CAL.
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