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Genzyme (GENZ - option chain) shares are rising today on a report in the Wall Street Journal which says that Sanofi-Aventis SA (SNY) could make a formal takeover offer to GENZ's board that could be worth about $20 billion. SNY declined to comment on the report. 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 GENZ.GENZ opened this morning at $70.31. So far today the stock has hit a low of $69.97 and a high of $70.97. As of 11:55, GENZ is trading at $70.09 up $2.09 (3.1%). The chart for GENZ looks bullish and S&P gives GENZ a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $65 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 weeks as long as GENZ is above $65 at August expiration. Genzyme would have to fall by more than 7% before we would start to lose money. Learn more about this type of trade here.
GENZ has been below $65 as recently as last week but has risen quickly past that level as the takeover speculation has intensified. As long as a deal is potentially in the works, it should create a floor on the price of GENZ. Over the past week, the stock has shown support around $64 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 GENZ nor SNY.
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