Rambus Inc. (NASDAQ: RMBS - option chain) shares are rising today after the company said European Union antitrust regulators have agreed to drop a probe and any fines if the company reduces its royalty rates for DRAM memory chip patents. The European Commission had charged RMBS with setting exorbitant royalties for DRAM patents. 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 $16.84. So far today the stock has hit a low of $16.55 and a high of $17.81. As of 11:15, RMBS is trading at $17.44 up 2.35 (15.6%). The chart for RMBS looks bullish.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $8 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 6.7% return in just five and a half months as long as RMBS is above $8 at November expiration. Rambus would have to fall by more than 54% before we would start to lose money. Learn more about this type of trade here.
RMBS has not been below $8 since March and has shown support around $9.75 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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