Symantec Corporation (NASDAQ: SYMC) shares are trading higher this morning on news of two buyouts in the software industry. Sun Microsystems (NASDAQ: JAVA) announced this morning that it has agreed to buy open-source software maker MySQL AB for $1 billion, and Oracle (NASDAQ: ORCL) reported this morning that it has agreed to buy BEA Systems Inc. (NASDAQ: BEAS) for about $8.5 billion. Investors might think that SYMC could be an eventual buyout target. 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 SYMC.
After hitting a one-year high of $21.32 in October, the stock hit a one-year low of $15.15 last week. SYMC opened this morning at $15.16. So far today the stock has hit a low of $15.57 and a high of $16.16. As of 11:00, SYMC is trading at $16.12, up $0.72 (4.7%). The chart for SYMC 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 July bull-put credit spread below the $12.50 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. For this particular trade, we will make an 11.1% return in six months as long as SYMC is above $12.50 at July expiration. Symantec would have to fall by more than 21% before we would start to lose money.
SYMC hasn't been below $15 at all in the past year and has shown support around $15.35 recently. This trade could be risky if the company's earnings next week miss expectations, but even if that happens, this position could be protected by the support the stock might from bargain hunters who have so far kept the price above $15.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SYMC, BEAS, ORCL, or JAVA.
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Reader Comments (Page 1 of 1)
2-26-2008 @ 6:34PM
Indu Manthi said...
Very interesting, I have heard rumours ranging from Cisco, Accenture, HP, Microsoft to IBM buying Symantec. You would think this is a brgain at this price.