Mastercard (MA) PriceWatch Alert Could Hit 51.50% Return

Posted on Wednesday, July 23, 2008 8:07 AM

Mastercard (NYSE: MA) closed yesterday at $273.85. So far the stock has hit a 52-week low of $120.00 and 52-week high of $320.30. Mastercard stock has been showing support around 247.41 and resistance in the 288.09 range. Technical indicators for the stock are Bullish and S&P gives MA a positive 4 STAR (out of 5) buy rating. MA appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Sep '08 270 covered call (MAL IX) for a net debit in the $249.25 area. That is also the break even stock price for this trade. This covered call has a 59 day duration, provides 8.98% downside protection and an 8.32% assigned return rate for a 51.50% 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 MA Jan '09 180 Call (MAL AP) and selling the Sep '08 270 call (MAL IX) for a $76.60 debit. The trade has a 59 day life and would provide 6.30% downside protection and a 17.49% assigned return rate for a 108.00% annualized return rate (for comparison purposes only). Mastercard 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]