Danaher (NYSE: DHR - option chain) shares are rising today after the company agreed to purchase AB Sciex from MDS Inc. (NYSE: MDZ) and Life Technologies (NASDAQ: LIFE) for a combined $1.1 billion. DHR also announced more details of its restructuring, doubling the number of jobs eliminated.
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 DHR.
DHR opened this morning at $61.59. So far today the stock has hit a low of $61.26 and a high of $62.69. As of 11:45, DHR is trading at $61.73 up 1.31 (2.2%). The chart for DHR looks neutral and S&P gives DHR 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 $55 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 six weeks as long as DHR is above $55 at October expiration. Danaher would have to fall by more than 10% before we would start to lose money.
DHR has not been below $55 since April and has shown support around $58 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 DHR or MDZ.
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