Western Union (WU) Drops Nearly 2% But Still Trading Near Its 52 Week High

Posted: Friday, November 20, 2009 8:27 AM EDT

Western Union (NYSE: WU) closed yesterday at $19.28. So far the stock has hit a 52-week low of $10.05 and 52-week high of $20.64. Western Union stock has been showing support around 18.79 and resistance in the 19.57 range. Technical indicators for the stock are Bullish and S&P gives WU a neutral 3 STAR (out of 5) hold rating. WU appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a May '10 17.50 covered call (WU EW) for a net debit in the $16.43 area. That is also the break even stock price for this trade. This covered call has an 183 day duration, provides 14.78% downside protection and a 6.51% assigned return rate for a 12.99% 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 WU Jan '11 10 Call (ZZH AB) and selling the May '10 17.50 call (WU EW) for a $6.80 debit. The trade has an 183 day life and would provide 12.86% downside protection and a 10.29% assigned return rate for a 21.00% annualized return rate (for comparison purposes only). Western Union has a current annual dividend yield of 0.20%. [FBB-Seven Summits Research]

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