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Campbell Soup Co (CPB - option chain) stock is trading lower today after the company reported Q4 2010 earnings this morning, posting a profit of $113 million, or 33 cents per share, on revenue of $1.52 billion. While this beat the estimated EPS of 30 cents per share, the stock is down a chunk this morningbecause the expected revenue was $1.60 billion. 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 CPB.
This morning, CPB opened at $36.03. So far today the stock has hit a high of $36.66 and a low of $35.82. As of 11:55, CPB is trading at $36.02, down $1.30 (-3.5%). The chart for CPB looks bearish and S&P gives CPB a negative 2 STARS (out of 5) sell ranking.
For a bearish hedged play on this stock, I would consider a February 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 12.9% return in six months as long as CPB is below $39 at February expiration. Campbell's would have to rise by more than 8% before we would start to lose money. Learn more about this type of trade here.
CPB hasn't been above $38 at all in the past year and has shown resistance around $37.50 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 CPB.
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