American Electric Power Company (AEP) Showing Bullish Technicals With 5.2% Dividend

Posted: Tuesday, November 17, 2009 9:15 AM EDT

American Electric Power Company (NYSE: AEP) closed yesterday at $32.12. So far the stock has hit a 52-week low of $24.00 and 52-week high of $34.34. American Electric Power stock has been showing support around 31.51 and resistance in the 32.45 range. Technical indicators for the stock are Bullish and S&P gives AEP a positive 4 STAR (out of 5) buy rating. AEP appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Feb '10 32.50 covered call (AEP BZ) for a net debit in the $30.97 area. That is also the break even stock price for this trade. This covered call has a 95 day duration, provides 3.58% downside protection and a 4.94% assigned return rate for an 18.98% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the AEP Jan '11 25 Call (OPB AE) and selling the Feb '10 32.50 call (AEP BZ) for a $6.25 debit. The trade has a 95 day life and would provide 2.71% downside protection and a 20.00% assigned return rate for a 77.00% annualized return rate (for comparison purposes only). American Electric Power has a current annual dividend yield of 5.22%. [ATU-Seven Summits Research]

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