Assured Guaranty (NYSE: AGO - option chain) shares rose Monday after the stock received positive coverage in Barron's over the weekend. An analyst wrote in the magazine that shares of the stock could appreciate quickly since it is the only bond insurer among its competitors that still has the credit rating and financial strength to write insurance on new issues of municipal bonds and bond securitizations. Barron's also said that Assured Guaranty could have smaller-than-expected losses from claims. 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 AGO.
AGO opened at $18.70. In morning trading, the stock hit a low of $18.70 and a high of $19.63. As of 11:05, AGO was trading at $19.53 up 1.38 (7.6%). The chart for AGO looks neutral and S&P gives AGO a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $12.50 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 8.7% return in three and a half months as long as AGO is above $12.50 at January expiration. AGO would have to fall by more than 36% before we would start to lose money.
AGO has not been below $12.50 since July and has shown support around $17 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 AGO.
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