Filed under: Deals, Industry, Anheuser-Busch Cos (BUD), Options, Technical Analysis
Anheuser-Busch Companies Inc. (NYSE: BUD) shares are trading higher this morning after the Belgian magazine Trends reported that the brewing giant is in merger speaks with Belgian brewer InBev. The Wall Street Journal also reported that the two companies were in merger talks. If you think that the company 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 BUD.
After hitting a one-year high of $55.19 in June, the stock hit a one-year low of $46.09 last week. BUD opened this morning at $47.04. So far today the stock has hit a low of $47.00 and a high of $47.59. As of 10:30, BUD is trading at $47.45, up 58 cents (1.2%). The chart for BUD looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $45 range. A bull-put credit spread is an options position that combines the buy 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 13.6% return in just six weeks as long as BUD is above $45 at April expiration. BUD would have to fall by more than 4% before we would start to lose money.
BUD hasn’t been below $45 at all in the past year and has shown support around $47 recently. This trade could be risky if the stock breaks below the support it has found over the past few weeks above $45, but even if that happens, this position could be protected by the defensive nature of BUD and the fact that people will move into this stock in times of uncertainty.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in BUD.
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