Norfolk Southern (NSC) PriceWatch Alert With 12.67% Downside Protection

Posted on Tuesday, August 19, 2008 8:07 AM

Norfolk Southern (NYSE: NSC) closed yesterday at $69.45. So far the stock has hit a 52-week low of $41.36 and 52-week high of $75.53. Norfolk Southern stock has been showing support around 67.96 and resistance in the 71.74 range. Technical indicators for the stock are Bullish and S&P gives NSC a positive 4 STAR (out of 5) buy rating. NSC appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Dec '08 65 covered call (NSC LM) for a net debit in the $60.65 area. That is also the break even stock price for this trade. This covered call has a 123 day duration, provides 12.67% downside protection and a 7.17% assigned return rate for a 21.28% 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 NSC Jan '10 30 Call (YGC AF) and selling the Dec '08 65 call (NSC LM) for a $32.25 debit. The trade has a 123 day life and would provide 10.37% downside protection and an 8.53% assigned return rate for a 25.00% annualized return rate (for comparison purposes only). Norfolk Southern has a current annual dividend yield of 1.83%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]