Select Sector SPDR-Financial (XLF) 12/4/09 PriceWatch Alert At $13.15 Break Even

Posted: Friday, December 04, 2009 8:12 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Financial (PCX: XLF) closed yesterday at $14.36. So far XLF has hit a 52-week low of $5.88 and 52-week high of $15.76. XLF has been showing support around 13.93 and resistance in the 15.15 range. Technical indicators are Bearish. XLF appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 14 covered call (XJZ CN) for a net debit in the $13.15 area. That is also the break even stock price for this trade. This covered call has a 106 day duration, provides 8.43% downside protection and a 6.46% assigned return rate for a 22.26% 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 XLF Jan '11 8 Call (VKP AH) and selling the Mar '10 14 call (XJZ CN) for a $5.29 debit. The trade has a 106 day life and would provide 7.45% downside protection and a 13.42% assigned return rate for a 46.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]