Protecting Profits in Radware (RDWR)

Shares of Radware Ltd. (NASDAQ: RDWR) popped late last week, spiking to over $39.00 per share on takeover chatter. While RDWR's long-term story is quite impressive, you have to ask yourself, “Is the stock overdone? What if a takeover does not materialize?”

If you have been long the stock, congratulations to you; I have been long the name on many occasions, though, unfortunately, not as of the time of the stock's recent spike. If I were, though, I would be protecting the position in some way, shape or form. In addition, I would be protecting my gains with a nod toward reentering a long position in the shares at a more reasonable price point.

Lets take a quick look at the technicals to see where to structure a trade in the smartest way. Pulling up a long-term (~3-year) chart you will see that the stock has ramped sharply over the past few years. The stock has immense technical support at $20.00 and $24.00, with intermediate support levels at $25.00 (horizontal) and $27.50 (50-day moving average) as well. Beyond there, you are in very uncharted territory.

If you have been long, here is a prudent strategy that you can implement immediately:

Sell the November $25/40 strangle for a net credit of $2.00 to purchase the October $30.00 put for $0.90. The trade nets you a net credit of $1.10, which gives you total upside from here of 22.73%, while giving you protection against a sharp move lower in the near term via failed takeover chatter.

Wondering how Benzinga's Chief Options Strategist is playing Radware? Click here to find out…