SLM Corp. (NYSE: SLM) shares are trading higher today after the company announced that banking veteran Anthony Terracciano will serve as chairman, and former Sallie Mae executive John Remondi as chief financial officer. 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 SLM.After hitting a one-year high of $58.00 in August, the stock hit a one-year low of $16.35 on Friday. SLM opened this morning at $18.12. So far today the stock has hit a low of $17.55 and a high of $19.20. As of 11:00, SLM is trading at $18.95, up $2.28 (13.7%). The chart for SLM looks bearish and steady. while S&P gives the stock it a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a February bull-put credit spread below the $15 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. For this particular trade, we will make a 13.6% return in just six weeks as long as SLM is above $15 at February expiration. Sallie Mae would have to fall by more than 20% before we would start to lose money.
SLM hasn't been below $16 at all in the past year and has shown support around $16.50 recently. This trade could be risky if the stock continues its recent precipitous fall, but even if that happens, this position might be protected by bargain hunters who think this stock has fallen too far.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in SLM.
