Arch Coal (ACI) PriceWatch Alert Could Hit 48.26% Return

Posted on Friday, August 08, 2008 8:07 AM

Arch Coal (NYSE: ACI) closed yesterday at $49.08. So far the stock has hit a 52-week low of $28.11 and 52-week high of $77.40. Arch Coal stock has been showing support around 46.61 and resistance in the 53.17 range. Technical indicators for the stock are Bearish and S&P gives ACI a positive 4 STAR (out of 5) buy rating. ACI appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '09 50 covered call (ACI AJ) for a net debit in the $41.18 area. That is also the break even stock price for this trade. This covered call has a 162 day duration, provides 16.10% downside protection and a 21.42% assigned return rate for a 48.26% 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 ACI Jan '09 45 Call (ACI AI) and selling the Jan '09 50 call (ACI AJ) for a $2.65 debit. The trade has a 162 day life and would provide 2.91% downside protection and an 88.68% assigned return rate for a 200.00% annualized return rate (for comparison purposes only). Arch Coal has a current annual dividend yield of 0.77%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]