Union Pacific (UNP) PriceWatch Alert Targets 10.25% Downside Protection

Posted on Friday, July 18, 2008 8:07 AM

Union Pacific (NYSE: UNP) closed yesterday at $73.20. 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 70.69 and resistance in the 75.69 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 72.50 covered call (UNP KV) for a net debit in the $65.70 area. That is also the break even stock price for this trade. This covered call has a 127 day duration, provides 10.25% downside protection and a 10.35% assigned return rate for a 29.75% 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 60 Call (UHP AL) and selling the Nov '08 72.50 call (UNP KV) for a $9.15 debit. The trade has a 127 day life and would provide 5.53% downside protection and a 36.61% assigned return rate for a 105.00% 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]