Genentech (NYSE: DNA - option chain) shares have moved higher today after the company and its partner Roche announced its breast-cancer drug Avastin improved the survival time for patients in a late-stage study. The results bring DNA one step closer to full regulatory approval from the FDA. 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 DNA.DNA opened this morning at $76.40. So far today the stock has hit a low of $74.86 and a high of $79.16. As of 12:40, DNA is trading at $77.09, up $4.35 (6.0%). The chart for DNA looks bullish and S&P gives DNA a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $65 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 4.2% return in just four weeks as long as DNA is above $65 at December expiration. Genentech would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.
DNA hasn't been below $65 at all in the past year and has shown support around $69 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 DNA.
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