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GlaxoSmithKline (GSK - option chain) stock is trading lower Wednesday after competitor Mylan (MYL) received approval to start selling a generic form of GSK's herpes drug Valtrex. 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 GSK.Wednesday morning, GSK opened at $32.62. So far today the stock has hit a high of $32.91 and a low of $32.52. As of 11:30, GSK is trading at $32.58, down $0.34 (-1.0%). The chart for GSK looks neutral and S&P gives GSK a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $37.50 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 six months as long as GSK is below $37.50 at November expiration. GSK would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
GSK hasn't been above $37.50 at all since early May and has shown resistance around $36 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 GSK nor MYL.
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