Stryker (SYK) bone-growth putty fails regulatory challenge

Posted Apr 1st 2009 1:30PM by Brent Archer
Filed under: Major Movement, Bad News, Options, Technical Analysis

Stryker (NYSE: SYK - option chain) stock is falling today after advisors to federal regulators recommended that the company's bone-growth putty for spinal surgery should not be approved for expanded use. The advisors were concerned about a lack of scientific rigor in SYK's clinical trials of the putty. 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 SYK.

This morning, SYK opened at $33.55. So far today the stock has hit a low of $32.34 and a high of $33.89. As of 11:50, SYK is trading at $32.73, down $1.31 (-3.9%). The chart for SYK looks bullish and S&P gives SYK a positive 4 STARS (out of 5) buy ranking.

For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $40 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 six weeks as long as SYK is below $40 at May expiration. Stryker would have to rise by more than 22% before we would start to lose money. Learn more about this type of trade here.

SYK hasn't been above $40 since late last month and shown resistance around $34 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 SYK.

Tags: Investors Observer, InvestorsObserver, options, Stryker, SYK