Tuesday, August 25, 2009

Sanofi-Aventis (SNY) gains on UNH swine flu assurances:


Posted Aug 21st 2009 1:40PM by Brent Archer

Sanofi-Aventis (NYSE: SNY - option chain) shares are rising today after health insurer Unitedhealth Group (NYSE: UNH) announced that it would fully cover swine flu vaccinations, even for members that do not have immunizations typically covered. As one of the drugmakers that is producing a swine flu vaccine, SNY stands to benefit. 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 SNY.

SNY opened this morning at $33.69. So far today the stock has hit a low of $33.63 and a high of $34.17. As of 11:45, SNY is trading at $33.89 up $1.02 (3.1%). The chart for SNY looks neutral and S&P gives SNY 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 $27.50 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 four months as long as SNY is above $27.50 at December expiration. SNY would have to fall by more than 19% before we would start to lose money. Learn more about this type of trade here.

SNY has not been below $27.50 since April and has shown support around $31.50 recently.

Brent Archer is an options analyst and writer at Investors Observer.

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