The Allstate Corporation (NYSE: ALL) shares are trading higher today after a Bernstein analyst upgraded the stock to "Outperform" from "Market Perform." 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 ALL.After hitting a one-year high of $63.73 in May, the stock hit a one-year low of $44.56 last week. ALL opened this morning at $49.45. So far today the stock has hit a low of $47.92 and a high of $49.46. As of 1:40, ALL is trading at $48.23, up $0.62 (1.3%). The chart for ALL looks neutral but improving, 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 an April bull-put credit spread below the $45 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 just 3 weeks as long as ALL is above $45 at April expiration. Allstate would have to fall by more than 6% before we would start to lose money.
ALL hasn't been below $45 by more than a few cents in the past year and has shown support around $46 recently. This trade could be risky if the company's earnings (due out on 4/23) disappoint, but even if that happens, this position could be protected by the support the stock might find just above $45, where it bottomed out twice in the past two months.
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 ALL.
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