Filed under: Major movement, Bad news, Industry, Nokia Corp. (NOK), Sony Corp ADR (SNE), Options, Technical Analysis
Nokia Corp. (NYSE: NOK) stock is trading lower this day after competitor Sony Ericcson, a joint venture between LM Ericsson (NASDAQ: ERIC) and Sony (NYSE: SNE), warned that first-quarter sales could be lower than originally expected due to slowing demand for mid- and high-range mobile phones. 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 NOK.
After hitting a one-year low of $21.80 last March, the stock hit a one-year high of $42.22 in November. This morning, NOK opened at $30.84. So far this day the stock has hit a low of $29.89 and a high of $31.18. As of 12:40, NOK is trading at $29.98, down $2.77 (-8.3%). The chart for NOK looks bearish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the buy 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 5.3% return in four months as long as NOK is below $40 at June expiration. Nokia would have to rise by more than 33% before we would begin to lose money.
NOK hasn’t been above $40 for more than a few days in the past year and has shown resistance around $38 recently. This trade could be risky if the economy turns around swiftly or if the company’s earnings in mid-April are a positive surprise, but even if that happens, this position could be protected by resistance NOK might find at its 200- and 50-day moving averages, which are both currently around $35.
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 NOK, SNE, or ERIC. He does have a Nokia phone in his pocket.
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