Filed under: Deals, EMC Corp (EMC), Options, Technical Analysis
EMC Corporation (NYSE: EMC) stock is falling this day after the company stated this morning that it has concurred to acquire Document Sciences Corp. (NASDAQ: DOCX) for $14.75 per share in cash. EMC plans to operate DOCX as a business unit within the EMC Content Management and Archiving division, hoping to strengthen its presence in the transactional content management market. The deal is expected to close in the first quarter of 2008. 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 TSO.
After hitting a one-year low of $12.74 in March, the stock hit a one-year high of $25.47 in October. This morning, EMC opened at $18.43. So far today the stock has hit a low of $18.41 and a high of $18.90. As of 11:05, EMC is trading at $18.44, down $0.52 (-2.7%). The chart for EMC looks bearish and steady, while S&P gives the stock a very positive 5 STARS (out of 5) strong purchase rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $25 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 a 5.3% return in 4 months as long as EMC is below $25 at April expiration. EMC would have to rise by more than 35% before we would start to lose money. Learn more about this type of trade here.
EMC hasn’t been above $25 for more than a few days in the past year and has shown resistance around $19.50 recently. This trade could be risky if the technology sector continues to steam ahead, but this position could be protected by resistance EMC might find at its 50 day moving average, which is currently at $21 and falling.
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 EMC or DOCX.
Entries (RSS)