A long-term pain prescription looks to finally be filled both on and off the chart for Teva Pharmaceuticals Industries Ltd (ADR) (NYSE:TEVA). But for investors who are interested in the speculative turnaround play, buying a fully protected married put position on TEVA stock looks like the right prescription to avoid any potentially painful setbacks. Let me explain.

It has been a busy week in TEVA stock. It’s also finally one where bullish investors have been offered some promising developments after a couple punishing years marked by scandal and poor business decisions pummeled shares to 15-year lows this past month.

Shares of Teva Pharmaceuticals charged higher out-the-gate Monday by 19% to $18.50 and then tacked on an additional 4.5% during Tuesday’s session.

The bullish reaction followed news the company is selling its Paragard IUD franchise in a deal valued at $1.1 billion and word that TEVA’s Board of Directors selected veteran healthcare insider Kare Scultz as CEO — an individual experienced in corporate turnarounds.

Bottom line, both developments are important as Teva Pharmaceuticals looks to move past its transgressions and begin executing on promised divestments to pay down a heavy debt load fueled by its prior aggressive and ill-fated acquisition strategy.

No doubt, Teva still has its work cut out for it off the price chart. And TEVA stock also a long journey ahead of itself, if it’s ever going to reclaim its prior glory. That being said, with the earmarks of a bottom in place, buying smartly after some stiff price gauging looks like a nice play for contrarian investors.

TEVA Stock Monthly Chart

Looking at the monthly chart of TEVA, it appears a bottom, or price action nearing a longer-term low, is finally building.

Admittedly, our own attempt last month at bullish forecasting immediately following a capitulation-style extreme proved too early to mark a low in TEVA stock. Now however, it is firming up on the monthly view inside a still much oversold Fibonacci price zone.

In our view, the situation is providing investors with a nice contrarian, value-style opportunity and one made all the more attractive using a married put strategy.

TEVA Stock Married Put Spread

Courtesy of OptionVue.com

With TEVA showing some promising signs a low is or could be in place sometime soon, yet respectful of the fact that conditions could always deteriorate and seeing that Teva’s options are reasonably priced right now, a married put strategy is favored.

Specifically and with TEVA stock at $18.87, the Oct $17.50 married put combination is priced for $19.31. What does this offer bullish investors?

For one, the sky is the limit as far as upside potential, as this strategy is the synthetic equivalent of a long call position. Having said that, I’d personally set my sights lower and look to hedge off the upside if TEVA put together a decent rally in the next couple weeks.

Secondly, risk is limited to $1.81 or about 10% of TEVA stock risk.

Ultimately, the protection in our eyes is a bit loose. However, given TEVA’s volatility and the possibility for quick and large price movement in either direction, the insurance premium of about 2.5% isn’t overly harmful for bulls’ health if a rally takes hold. And if shares of Teva falter again, the value of having protection in place is priceless relative to its expense.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!