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Walgreen Co (NYSE: WAG - option chain) shares are rising today after the company withdrew its buyout bid for Long's Drug Stores (NYSE: LDG). This clears the way for CVS Caremark (NYSE: CVS) to complete its $2.7 billion buyout offer of LDG, which was a smaller offer than that of Walgreen.
It seems that investors approve of this action, since WAG is up a nice chunk today. 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 WAG.
WAG opened this morning at $26.89. So far today the stock has hit a low of $26.44and a high of $27.27. As of 12:30, WAG is trading at $26.80, up 62 cents (2.3%). The chart for WAG looks bearish and S&P gives WAG a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $25 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 28.2% return in just six weeks as long as WAG is above $25 at November expiration. Walgreens would have to fall by more than 6% before we would start to lose money. Learn more about this type of trade here.
WAG hasn't been below $25 at all in the past year and has shown support around $26.10 recently.
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 WAG, LDG, or CVS.
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