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Dean Foods (DF - option chain) shares are up a significant amount for the second consecutive day after rumors resurfaced that Groupe Danone SA could be investigating an acquisition of the company. This rumor first came to light back in March, but since then DF has seen its share price cut by a third, which could make the company even more attractive now. 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 DF.DF opened this morning at $10.55 So far today the stock has hit a low of $10.50 and a high of $10.75. As of 12:15, DF is trading at $10.63 up 0.41 (4.0%). The chart for DF looks neutral and S&P gives DF a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $9 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 15.4% return in three and a half months as long as DF is above $9 at December expiration. Dean would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
DF has not been below $9 at all in the past year and has shown support around $9.65 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 DF.
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