Massey Energy (MEE) 11/20/09 PriceWatch Alert Targets 15.51% Downside Protection

Posted: Friday, November 20, 2009 8:05 AM EDT

Massey Energy (NYSE: MEE) closed yesterday at $38.03. So far the stock has hit a 52-week low of $9.62 and 52-week high of $41.14. Massey Energy stock has been showing support around 36.13 and resistance in the 39.83 range. Technical indicators for the stock are Bullish and S&P gives MEE a weak 2 STAR (out of 5) sell rating. MEE appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '10 37 covered call (MQO DB) for a net debit in the $32.13 area. That is also the break even stock price for this trade. This covered call has a 148 day duration, provides 15.51% downside protection and a 15.16% assigned return rate for a 37.38% 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 MEE Jan '11 15 Call (VHK AC) and selling the Apr '10 37 call (MQO DB) for an $18.10 debit. The trade has a 148 day life and would provide 12.96% downside protection and a 21.55% assigned return rate for a 53.00% annualized return rate (for comparison purposes only). Massey Energy has a current annual dividend yield of 0.59%. [FBB-Seven Summits Research]

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