Bayer reported earnings today, beating consensus slightly, but the stock has traded off 4.6%. This move was above our earnings jump model predictions last week, which suggested the earnings event looked cheap. In this note, we discuss Bayer’s litigation saga and conclude that, at the very least, it seems adequately provisioned and appears priced in. There might be a possibility that if a “circuit split” is established, upside could be unlocked.
We set the put strike as close to the 12-month low as possible, noting that if the structure expires below that level, the stock is acquired at a near-historic low forward P/E. We then opt for as much leveraged upside as the put premium affords us, but an alternative trade could be to lower the low call strike for earlier upside participation.