Union Pacific (UNP) PriceWatch Alert Could Hit 25.58% Return

Posted on Friday, July 11, 2008 8:07 AM

Union Pacific (NYSE: UNP) closed yesterday at $72.19. So far the stock has hit a 52-week low of $49.69 and 52-week high of $82.76. Union Pacific stock has been showing support around 70.18 and resistance in the 74.24 range. Technical indicators for the stock are Neutral and S&P gives UNP a neutral 3 STAR (out of 5) hold rating. UNP appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Nov '08 70 covered call (UNP KN) for a net debit in the $63.99 area. That is also the break even stock price for this trade. This covered call has a 134 day duration, provides 11.36% downside protection and a 9.39% assigned return rate for a 25.58% 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 UNP Jan '09 57.50 Call (UHP AY) and selling the Nov '08 70 call (UNP KN) for a $9.60 debit. The trade has a 134 day life and would provide 7.05% downside protection and a 30.21% assigned return rate for an 82.00% annualized return rate (for comparison purposes only). Union Pacific does not pay dividends at this time. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]