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Amgen (NASDAQ: AMGN - option chain) shares are up big today after the company announced its experimental bone drug, denosumab, was superior to Novartis' (NYSE: NVS) Zometa in preventing complications related to the spread of cancer to bones in a Phase 3 trial. 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 AMGN.AMGN opened this morning at $60.25. So far today the stock has hit a low of $59.85 and a high of $60.95. As of 11:05, AMGN is trading at $60.46 up $8.23 (15.8%). The chart for AMGN looks neutral and S&P gives AMGN a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $45 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 three months as long as AMGN is above $45 at October expiration. Amgen would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.
AMGN has not been below $44.96 at all in the past year and has shown support around $49 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 AMGN or NVS.
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