Nokia Corp. (NYSE: NOK) shares are rising today upon publication of a BusinessWeek story in which analyst Richard Windsor of Nomura Securities speculates that NOK and LM Ericsson (NASDAQ: ERIC) could benefit from the patent infringement ruling on Qualcomm (NASDAQ: QCOM) earlier this week. QCOM had provided technology to NOK rivals LG (NYSE: LPL) and Samsung, which now must transition their mobile phones to non-infringing technology. The transition may allow NOK to grab market share from the two cell-phone makers, according to Windsor. 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 NOK.After hitting a one-year low of $18.87 in January, the stock hit a one-year high of $42.22 in November. NOK opened this morning at $38.09. So far today the stock has hit a low of $37.68 and a high of $38.24. As of 12:55, NOK is trading at $38.20, up $0.80 (2.1%). The chart for NOK looks bullish but deteriorating, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $30 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 a 7.5% return in just three and a half months as long as NOK is above $30 at April expiration. Nokia would have to fall by more than 21% before we would start to lose money.
NOK hasn't been below $30 since August and has shown support around $37 recently. This trade could be risky if the demand for gadgets drops off in the coming months, but even if that happens, this position could be protected by the support the stock might find just above $32 from its 200 day moving average.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in NOK, QCOM, BRCM, or ERIC.
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