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Gap (GPS - option chain) shares are rising today after the company said it expects to see Q4 EPS of 49 to 51 cents, well above analysts' estimates of 44 cents. GPS is also getting momentum from its January sales results. The retailer announced its same-store sales rose 5.0 percent in January, topping analysts' forecasts of a 4.4 percent gain. 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 GPS.GPS opened this morning at $19.57. So far today the stock has hit a low of $19.25 and a high of $20.00. As of 11:40, GPS is trading at $19.59 up 57 cents (3.0%). The chart for GPS looks neutral and S&P gives GPS a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $16 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 an 11.1% return in four and a half months as long as GPS is above $16 at June expiration. Gap would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
GPS has not been below $16 since July and has shown support around $18.50 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 GPS.
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