Novartis AG (NYSE: NVS) shares are trading higher today after the company reported progress with Galvus, a drug the company is developing to treat type-2 diabetes. Shares are up slightly on this news even as another drug being developed by NVS and Momenta (NASDAQ: MNTA) was denied approval by the FDA. 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 NVS.After hitting a one-year high of $61.6 last November, the stock hit a one-year low of $51.19 in August. NVS opened this morning at $53.52. So far today the stock has hit a low of $53.07 and a high of $53.61. As of 11:20, NVS is trading at $53.10, up $0.17 (0.3%). The chart for NVS looks bearish and steady, 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 January bull-put credit spread below the $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. This particular trade will make a 6.4% return in just 3 months as long as NVS is above $50 at January expiration. Novartis would have to fall by more than 15% before we would start to lose money.
NVS hasn't been below $50 since 2005 and has shown support around $52 recently. This trade could be risky if the company's drugs run afoul of the FDA, but even if that happens, this position could be protected by strong support it has formed around $52 over the past three months.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in NVS.
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