Filed under: Major movement, Earnings reports, Bad news, Industry, Halliburton (HAL), Schlumberger Limited (SLB), Options, Technical Analysis, Oil

Halliburton Company (NYSE: HAL) shares are trading lower today after competitor Schlumberger (NYSE: SLB) posted a fourth-quarter profit of $1.38 billion, or $1.12 per share, failing to meet analysts’ estimates of $1.13 per share. SLB said in its earnings announcement that lower pricing in U.S. land operations and seasonal weather factors contributed to less-than-satisfactory margins in the fourth quarter, which could be a bad sign for HAL. 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 HAL.

After hitting a one-year low of $28.40 last January, the stock hit a one-year high of $41.95 in October. This morning, HAL opened at $32.36. So far today the stock has hit a low of $31.55 and a high of $32.90. As of 10:55, HAL is trading at $31.65, down $1.65 (-4.9%). The chart for HAL looks bearish and steady, 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 an April bear-call credit spread above the $40 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 will make a 4.2% return in 3 months as long as HAL is below $40 at April expiration. Halliburton would have to rise by more than 28% before we would start to lose money.

HAL hasn’t been above $40 since November and has shown resistance around $39 recently. This trade could be risky if the price of oil bounces back and goes above $100, but that won’t be likely to happen unless the economy gets turned around quickly.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in HAL or SLB.

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This entry was posted on Friday, January 18th, 2008 at 3:39 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.