Teva Pharmaceuticals (NASDAQ: TEVA) shares are falling after competitor Mylan Inc. (NYSE: MYL) was granted licensing rights to distribute a generic version TEVA's multiple sclerosis drug Copaxone in almost all major markets. This could lead to lower demand for the higher-priced Copaxone down the road. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TEVA.After hitting a one-year low of $38.66 last June, the stock hit a one-year high of $50.00 in February. This morning, TEVA opened at $43.58. So far today the stock has hit a low of $43.31 and a high of $44.12. As of 12:25, TEVA is trading at $43.59, down $1.17 (-2.6%). The chart for TEVA looks bearish but improving slightly, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 5.3% return in three and a half months as long as TEVA is below $50 at September expiration. Teva would have to rise by more than 14% before we would start to lose money. Learn more about this type of trade here.
TEVA hasn't been above $50 at all in the past year and has shown resistance around $46 recently. This trade could be risky if the company's earnings (due out in late July or early August) are a positive surprise, but even if that happens, this position could be protected by resistance TEVA might find around $50, where it topped out twice in the past six 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 TEVA or MYL.
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