Allegheny Technologies Inc. (NYSE: ATI) shares are trading higher today as investors pounce on speculation that ATI may be a takeover target. One possible company mentioned as a suitor for ATI is US Steel (NYSE: X). If you think that the stock 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 ATI.
After hitting a one-year high of $119.7 last April, the stock hit a one-year low of $59.00 in January. ATI opened this morning at $79.00. So far today the stock has hit a low of $79.00 and a high of $84.22. As of 1:15, ATI is trading at $83.39, up $3.39 (4.3%). The chart for ATI 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 July bull-put credit spread below the $55 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 8.7% return in just three and a half months as long as ATI is above $55 at July expiration. ATI would have to fall by more than 33% before we would start to lose money. Learn more about this type of trade here.
ATI hasn't been below $59 at all in the past year and has shown support around $73 recently. This trade could be risky if this speculation disappears, but even if that happens, that position could be protected by support the stock might find arpund $65, where it bottomed out twice in the past few 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 ATI or X.
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