WellPoint Health Networks (WLP) PriceWatch Alert With 4.29% Downside Protection

Posted on Friday, August 22, 2008 8:07 AM

WellPoint Health Networks (NYSE: WLP) closed yesterday at $53.65. So far the stock has hit a 52-week low of $43.02 and 52-week high of $90.00. WellPoint Health Networks stock has been showing support around 51.86 and resistance in the 54.82 range. Technical indicators for the stock are Neutral and S&P gives WLP a weak 2 STAR (out of 5) sell rating. WLP appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Oct '08 55 covered call (WLP JK) for a net debit in the $51.35 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 4.29% downside protection and a 7.11% assigned return rate for a 45.52% 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 WLP Jan '10 20 Call (YFM AD) and selling the Oct '08 55 call (WLP JK) for a $32.50 debit. The trade has a 57 day life and would provide 2.14% downside protection and a 7.69% assigned return rate for a 49.00% annualized return rate (for comparison purposes only). WellPoint Health Networks 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]