Goldman Sachs Suggests Hedging Your LO Position

Goldman Sachs is out with an analyst note this morning, where it suggests hedging long positions in Lorillard, Inc. LO by buying 1x2 put spreads. The report noted that Goldman Sachs Tobacco analyst, Judy Hong, recently removed LO from the Conviction Buy list (still rated Buy), given potential headline risk around menthol regulation. While she sees the risk of a draconian regulation on menthol as very low, it is more difficult to say what the advisory committee (TPSAC) will recommend, and headline risk could be sizable, as menthol cigarettes represent nearly all of LO's profits. The GS analysts suggest playing this thesis by buying the June $75/60 1x2 put spread for $1.97 as a low cost hedge.