Potential AstraZeneca (AZN) Trade Has 4.47% Downside Protection

Posted: Friday, December 30, 2011 8:10 AM EDT
By: Market Intelligence Center Staff

AstraZeneca Plc (NYSE: AZN) closed Thursday's trading session at $45.87. In the past year, the stock has hit a 52-week low of $40.89 and 52-week high of $52.54. AstraZeneca (AZN) stock has been showing support around $45.39 and resistance in the $46.17 range. Technical indicators for the stock are Neutral and S&P gives AstraZeneca (AZN) a neutral 3 STARS (out of 5) hold rating. For a hedged play on AstraZeneca (AZN), look at the Apr '12 $45.00 covered call for a net debit in the $43.82 area. That is also the break-even stock price for this trade. This covered call has a duration of 113 days, provides 4.47% downside protection and an assigned return rate of 2.69% for an annualized return rate of 8.70% (for comparison purposes only). A lower-cost hedged play for AstraZeneca (AZN) would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the AstraZeneca (AZN) Jan '13 $35.00 call and selling the Apr '12 $45.00 call for a total debit of $9.20. The trade has a lifespan of 113 days and would provide 3.64% downside protection and an assigned return rate of 8.70% for an annualized return rate of 28.09% (for comparison purposes only). AstraZeneca (AZN) has a current annual dividend yield of 3.67%. [MarketIntelligenceCenter.com]