Rambus (NASDAQ: RMBS - option chain) shares are rising today after the Federal Trade Commission withdrew its antitrust case against the company due to a recent Supreme Court ruling against the FTC. The withdrawal eliminates the possibility of further litigation in the matter. 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 RMBS.RMBS opened this morning at $11.73. So far today the stock has hit a low of $11.27 and a high of $12.21. At 11:20, RMBS is trading at 12.04 up 1.26 (11.7%). The chart for RMBS looks bullish.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $7 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 an 11.1% return in just three months as long as RMBS is above $7 at August expiration. Rambus would have to fall by more than 41% before we would start to lose money. Learn more about this type of trade here.
RMBS has not been below $7 since February and has shown support around $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 RMBS.
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