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Boston Scientific (BSX - option chain) stock is trading lower today the company reached an agreement with Johnson & Johnson (JNJ) to settle three patent disputes. Under the deal, BSX will pay JNJ $1.725 billion. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BSX.This morning, BSX opened at $8.48. So far today the stock has hit a high of $8.83 and a low of $8.24. As of 11:50, BSX is trading at $8.47, down 16 cents (-1.8%). The chart for BSX looks bullish and S&P gives BSX a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $10 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 11.1% return in four months as long as BSX is below $10 at May expiration. BSX would have to rise by more than 17% before we would start to lose money. Learn more about this type of trade here.
BSX hasn't been above $10 at all since October and has shown resistance around $9.80 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 BSX nor JNJ.
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