Filed under: Deals, Bad news, Industry, Options, Technical Analysis, Garmin Ltd (GRMN)
Garmin Ltd. (Nasdaq: GRMN) shares are falling on news that chief competitor TomTom is expected to win regulatory approval from the European Commission to acquire its main supplier, TeleAtlas. TomTom beat out Garmin for TeleAtlas in a bidding war last year. The move could injured Garmin, who receives some mapping data from TeleAtlas. 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 GRMN.
After hitting a one-year high of $125.68 in October, the stock hit a one-year low of $42.01 in April. This morning, GRMN opened at $44.89. So far today the stock has hit a low of $43.72 and a high of $44.90. As of 2:05, GRMN is trading at $43.65, down $1.46 (-3.2%). The chart for GRMN looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong purchase rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $60 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’ll make a 4.2% return in two months as long as GRMN is below $60 at June expiration. Garmin would have to rise by more than 37% before we would start to lose money. Learn more about this type of trade here.
GRMN hasn’t been above $60 by more than a tiny bit since February and has shown resistance around $46 recently. This trade could be risky if the company’s earnings (due out on 4/30) are a positive surprise, but even if that happens, this position could be protected by resistance GRMN might find at its 50 day moving average, which is currently around $57 and falling.
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 GRMN.
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