Coinstar (CSTR - option chain) shares rose Wednesday after the company announced that it has extended its revenue sharing license agreement between Paramount Home Entertainment and Redbox Automated Retail, a wholly-owned subsidiary of Coinstar. 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 CSTR.
CSTR opened Wednesday at $53.50. In morning trading, the stock hit a low of $52.30 and a high of $54.76. As of 12:15, CSTR was trading at $53.17 up 0.67 (1.3%). The chart for CSTR looks bearish.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $45 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 8.7% return in five weeks as long as CSTR is above $45 at July expiration. Coinstar would have to fall by more than 15% before we would start to lose money.
CSTR has not been below $45 since April and has shown support around $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 CSTR.