AstraZeneca plc (NYSE: AZN) shares are rising today an analyst raised his rating of the stock to "Buy" from "Neutral," noting that other European pharmaceutical stocks, particularly GlaxoSmithKline (NYSE: GSK), have done better for no particular reason. He expects AZN to catch up with its competitors over the next three months, and added that large pharmaceutical companies should do well despite the ongoing economic turbulence. Investors seem to be unfazed by reports that the European Union collected confidential information about intellectual property rights and patent disputes from AZN and other drug companies in an inquiry over the potential blockage of generic drugs from entering the market. 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 AZN.After hitting a one-year high of $59.47 in April, the stock hit a one-year low of $41.59 earlier this month. AZN opened this morning at $45.46. So far today the stock has hit a low of $45.22 and a high of $45.87. As of 10:45, AZN is trading at $43.37, up $1.27 (2.9%). The chart for AZN looks bearish but improving 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 February bull-put credit spread below the $40 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 5.3% return in just one month as long as AZN is above $40 at February expiration. AstraZeneca would have to fall by more than 11% before we would start to lose money.
AZN hasn't been below $41.50 at all in the past year and has shown support around $42 recently. This trade could be risky if the EU raid turns into something more significant in the next month, but even if that happens, this position could be protected by the support the stock might find near its year low of $41.50.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AZN.
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