NetApp (NASDAQ:
NTAP) shares are falling after
the company announced it will sell $1.1 billion in five-year convertible senior notes to institutional buyers. Terms of the debt were not disclosed. 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 NTAP.
After hitting a one-year high of $33.84 last June, the stock hit a one-year low of $19.00 in March. This morning, NTAP opened at $23.48. So far today the stock has hit a low of $22.90 and a high of $23.88. As of 12:10, NTAP is trading at $23.85, down $0.11 (-0.4%). The chart for NTAP looks bullish but deteriorating, while
S&P gives the stock a neutral 3 Stars (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $30 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 an 8.7% return in three and a half months as long as NTAP is below $30 at September expiration. NetApp would have to rise by more than 25% before we would start to lose money. Learn more about this type of trade here.