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AOL (AOL - option chain) shares are rising today after the release of a regulatory filing showing company CEO and Chairman Tim Armstrong purchased 477,000 shares of the stock on Friday. Armstrong paid $20.97 per share for the stock, which has lost significant value since the announcement that it will pay $315M for internet portal Huffington Post. Armstrong previously purchased another 518,000+ shares back in May of last year at a similar price after the stock dropped in the spring. 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 AOL.AOL opened this morning at $21.56. So far today the stock has hit a low of $21.55 and a high of $22.34. As of 12:20, AOL is trading at $22.18 up 0.96 (4.5%). The chart for AOL looks bearish.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $20 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 11.1% return in two months as long as AOL is above $20 at April expiration. AOL would have to fall by more than 9% before we would start to lose money. Learn more about this type of trade here.
AOL has not been below $32.50 at all since the summer and has shown support around $20 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 AOL, but obviously he provides content for their BloggingStocks page.
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