Teva Pharmaceuticals (NASDAQ: TEVA - option chain) shares have moved higher today after the Food & Drug Administration approved the company's generic version Pulmicort, an asthma drug made by competitor AstraZeneca (NYSE: AZN). 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 TEVA.TEVA opened this morning at $43.00. So far today the stock has hit a low of $42.55 and a high of $43.78. As of 12:25, TEVA is trading at $42.84, up $0.65 (1.5%). The chart for TEVA looks bullish and S&P gives TEVA a positive 5 STARS (out of 5) strong buy ranking.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $35 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 leverages nice returns. For this particular trade, we will make a 7.5% return in just two months as long as TEVA is above $35 at January expiration. Teva would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
TEVA hasn't been below $35 at all in the past year and has shown support around $40 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 TEVA or AZN.
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