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Beazer Homes USA Inc. (NYSE: BZH) shares are trading higher today after an audit uncovered several accounting errors. Beazer is going to restate its results going back almost a decade. The changes are expected to boost the company's cumulative bottom line, though it will likely reflect a decrease in net income for 2006. 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 BZH.After hitting a one-year high of $48.60 in December, the stock plunged to hit a low of $8.08 in September. BZH opened this morning at $10.50. So far today the stock has hit a low of $10.13 and a high of $10.75. As of 10:35, BZH is trading at $10.22, up $0.29 (2.9%). The chart for BZH looks neutral but improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $7.50 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 an 11.1% return in just 5 weeks as long as BZH is above $7.50 at November expiration. Beazer would have to fall by more than 26% before we would start to lose money.
BZH hasn't been below $8 in the past year and has shown support around $9.30 recently. This trade could be risky if the housing sector goes in the tank again or if the company's earnings (due out in early November) disappoint, but even if that happens, this position could be protected by strong support between $8 and $10 it has established over the past two months.
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 BZH.
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