Sears Holdings (SHLD) 11/20/09 PriceWatch Alert Targets 8.22% Downside Protection

Posted: Friday, November 20, 2009 8:21 AM EDT

Sears Holdings (NasdaqNM: SHLD) closed yesterday at $72.95. So far the stock has hit a 52-week low of $26.80 and 52-week high of $79.75. Sears stock has been showing support around 68.53 and resistance in the 79.91 range. Technical indicators for the stock are Bullish and S&P gives SHLD a weak 2 STAR (out of 5) sell rating. SHLD appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 70 covered call (KTQ AN) for a net debit in the $66.95 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 8.22% downside protection and a 4.56% assigned return rate for a 29.17% 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 SHLD Jan '11 45 Call (VK AI) and selling the Jan '10 70 call (KTQ AN) for a $22.55 debit. The trade has a 57 day life and would provide 7.40% downside protection and a 10.86% assigned return rate for a 70.00% annualized return rate (for comparison purposes only). Sears does not pay dividends at this time. [FBB-Seven Summits Research]

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