Northrop Grumman (NYSE: NOC - option chain) shares are rising today after the company announced last night that it has received new contracts from the US Military. NOC will overhaul the Navy's Theodore Roosevelt, a nuclear-powered carrier, for $2.4 billion. NOC also received a modified $3.44 billion contract from the Air Force to provide services for its B-2 weapon system. 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 NOC.NOC opened this morning at $49.52. So far today the stock has hit a low of $48.17 and a high of $49.84. As of 11:40, NOC is trading at $49.16 up 69 cents (1.4%). The chart for NOC looks neutral and S&P gives NOC a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $40 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 6.4% return in three months as long as NOC is above $40 at November expiration. NOC would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
NOC has not been below $40 since March and has shown support around $46 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 BAC.
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