Western Digital (WDC) 11/20/09 PriceWatch Alert Could Hit 32.33% Return

Posted: Friday, November 20, 2009 8:45 AM EDT

Western Digital (NYSE: WDC) closed yesterday at $37.27. So far the stock has hit a 52-week low of $9.48 and 52-week high of $39.38. Western Digital stock has been showing support around 36.05 and resistance in the 38.93 range. Technical indicators for the stock are Bullish and S&P gives WDC a positive 4 STAR (out of 5) buy rating. WDC appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 36 covered call (WDC AI) for a net debit in the $34.27 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 8.05% downside protection and a 5.05% assigned return rate for a 32.33% 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 WDC Jan '11 10 Call (ZCO AB) and selling the Jan '10 36 call (WDC AI) for a $24.40 debit. The trade has a 57 day life and would provide 7.70% downside protection and a 6.56% assigned return rate for a 42.00% annualized return rate (for comparison purposes only). Western Digital does not pay dividends at this time. [FBB-Seven Summits Research]

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