Imclone Systems Inc. (NASDAQ: IMCL) shares are rising today after an analyst at Citigroup upgraded the stock to "Buy" from "Hold." Citi posted a $52 price target for IMCL and expects to hear good news at an upcoming conference. 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 IMCL.
After hitting a one-year high of $47.94 in October, the stock hit a one-year low of $30.00 last March. IMCL opened this morning at $44.81. So far today the stock has hit a low of $43.61 and a high of $45.20. As of 11:33, IMCL is trading at $43.80, up $0.71 (1.7%). The chart for IMCL looks bullish 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 May bull-put credit spread below the $35 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 9.9% return in just two months as long as IMCL is above $35 at May expiration. ImClone would have to fall by more than 20% before we would start to lose money.
IMCL hasn't been below $35 since August and has shown support around $42 recently. This trade could be risky if the company's earnings (due out in late April) disappoint, but even if that happens, this position could be protected by the support the stock has found just below $40, where it has bounced twice so far in 2008.
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 IMCL.
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