Garmin Ltd. (NASDAQ: GRMN) announced that it has completed the acquisition of Electronica Trepat S.A., the principal distributor of Garmin's products in Spain. Garmin will rename the firm Garmin Iberia S.A. and will retain its management, sales, marketing and supporting staff. It will also continue operations at its current headquarters and warehouse facility located close to Barcelona. Financial terms of the proposed transaction were not released. 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 TSO.After hitting a one-year high of $125.68 in October, the stock has fallen over the past two months. This morning, GRMN opened at $106.36. So far today the stock has hit a low of $102.07 and a high of $106.83. As of 11:15, GRMN is trading at $104.77, down $2.58 (-2.4%). The chart for GRMN looks bearish but improving slightly, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $135 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. This particular trade will make a 6.4% return in 7 weeks as long as GRMN is below $135 at January expiration. Garmin would have to rise by more than 28% before we would start to lose money.
GRMN hasn't been above $126 ever and has shown resistance around $110 recently. This trade could be risky if the holiday season turns out to be a big one for GPS navigation systems, but even if that happens, this position could be protected by the strong resistance GRMN should find around 125, where it topped in September and October.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in GRMN.
