True Religion Apparel, Inc. (NASDAQ: TRLG) bear call spread

Shares of designer denim retailer True Religion Apparel, Inc. (NASDAQ: TRLG) have yet to recover from a 24% drop in November that was spurred by an updated earnings guidance. Perhaps investors are nervous to bet on a company that peddles expensive discretionary items, but the stock has been range-bound around the 20 level for the past 3-1/2 months. Additionally, the stock recently slipped below its 50-week moving average. Investors who want to express a moderately bearish view on the shares could consider a bear call spread option trading strategy.

TRLG Credit Spread Trade Details:

TRLG is currently trading at $18.99, up roughly 1.4% today.

Credit Spread/Bear Call Spread–

• Sell the March 20 call (out-of-the-money)
• Buy the March 22.50 call (out-of-the-money)
• Net credit of $0.60 per spread

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

Profit/Loss Details:

Maximum Profit: $0.60 (the credit collected). This excludes commissions, though exit commissions will not be required if both calls expire worthless.

Maximum Risk: $1.90 (the difference between strikes minus the credit collected). Reward on risk is approximately 32% in 39 days.

Breakeven: $20.60 (the strike of the lower call plus the premium collected). This is 8.5% above the stock’s current level.

For more on TRLG:

True Religion names Lynne Koplin operating chief

Midnight Trader’s Analyst Notebook: TRLG

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