Filed under: Major movement, Earnings reports, Good news, Industry, Options, Technical Analysis, Economic data
HSBC Holdings PLC ADS (NYSE: HBC) shares are trading higher this morning after the company reported a 21% rise in profit in 2007, to $19.1 billion, beating analyst expectations. While the bank suffered loan impairment charges of $11.7 billion in 2007, net operating income rose 13% to $61.75 billion. If you think that the company 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 HBC.
After hitting a one-year high of $99.52 in October, the stock hit a one-year low of $69.25 in February. HBC opened this morning at $77.95. So far today the stock has hit a low of $77.63 and a high of $79.35. As of 11:00, HBC is trading at $78.61, up $3.36 (4.5%). The chart for HBC looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $65 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. This particular trade will make a 6.4% return in just one and a half months as long as HBC is above $65 at April expiration. HSBC would have to fall by more than 17% before we would start to lose money.
HBC hasn’t been below $69 at all in the past year and has shown support around $75 recently. This trade could be risky if the worldwide economic situation continues to worsen, but even if that happens, this position could be protected by the support the stock might find around $70 where the stock bottomed over the past month.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in HBC.
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