General Mills (NYSE: GIS) shares are trading higher after Goldman Sachs upgraded the stock to "Buy" from "Neutral," citing healthy earnings growth. 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 GIS.After hitting a one-year low of $51.00 in January, the stock hit a one-year high of $62.50 last month. GIS opened this morning at $61.48. So far today the stock has hit a low of $61.33 and a high of $62.00. As of 12:54, GIS is trading at $61.58, up 0.68 (1.12%). The chart for GIS looks bullish but deteriorating slightly, 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 a 6.4% return in just 6 weeks as long as GIS is above $55 at July expiration. Evergreen would have to fall by more than 10% before we would start to lose money. Learn more about this type of trade here.
GIS hasn't been below $55 by more than a few cents since February and has shown support around $60 recently. This trade could be risky if an economic recovery causes investors to rotate out of defensive stocks, but even if that happens, this position could be protected by the support the stock might find at its 200-day moving average, which is currently around $57.50.
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 GIS.
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