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Medtronic (MDT - option chain) stock is trading lower today after the company reported first-quarter earnings this morning, posting a profit of $830 million, or 76 cents per share. Excluding one-time items, MDT earned 80 cents per share on revenue of $3.77 billion. Analysts had forecast a profit of 81 cents per share on revenue of $3.95 billion. The company also lowered its fiscal-2011 EPS forecast by 5 cents to a range of $3.40 to $3.48. 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 MDT.This morning, MDT opened at $31.97. So far today the stock has hit a high of $32.41 and a low of $30.85. As of 12:10, MDT is trading at $31.77, down $3.22 (-9.2%). The chart for MDT looks bullish and S&P gives MDT a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider a January 2011 bear-call credit spread above the $39 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 five months as long as MDT is below $39 at January expiration. Medtronic would have to rise by more than 22% before we would start to lose money. Learn more about this type of trade here.
MDT hasn't been above $10 since June and has shown resistance around $36.75 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 controls bullish hedged positions in MDT.
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