Comcast Corp. (NASDAQ: CMCSA) announced yesterday that it will partner with Microsoft Corp. (NASDAQ: MSFT) to launch a new Internet-based product for small and medium-sized businesses that will provide communications tools normally used for larger organizations. These tools include corporate-class e-mail, calendaring and document sharing. 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 CMCSA.After hitting a one-year high of $30.18 in January, the stock hit a one-year low of $18.83 last week. CMCSA opened this morning at $19.68. So far today the stock has hit a low of $19.58 and a high of $20.28. As of 12:05, CMCSA is trading at $19.93, up $0.28 (1.4%). The chart for CMCSA looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January covered call at the $20 level. A covered call is an options position that combines the purchase of stock with the sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 6.3% return in just 2 months as long as CMCSA is above $20 at January expiration. Comcast would have to fall by more than 5% before we would start to lose money.
CMCSA has just dipped below $20 for the first time in the past year and has shown support around $19.30 recently. This trade could be risky if the company continues its recent slide, but even if that happens, this position could be protected by bargain hunters who see Comcast as a good value at this price..
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in Comcast. He does control a long hedged position in MSFT.
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