Arch Coal (ACI) PriceWatch Alert Targets 13.08% Downside Protection

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

Arch Coal (NYSE: ACI) closed yesterday at $56.59. So far the stock has hit a 52-week low of $28.59 and 52-week high of $77.40. Arch Coal stock has been showing support around 51.90 and resistance in the 59.80 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 60 covered call (ACI AL) for a net debit in the $49.19 area. That is also the break even stock price for this trade. This covered call has a 148 day duration, provides 13.08% downside protection and a 21.98% assigned return rate for a 54.20% 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 '10 25 Call (YEP AE) and selling the Jan '09 60 call (ACI AL) for a $26.90 debit. The trade has a 148 day life and would provide 8.29% downside protection and a 30.11% assigned return rate for a 74.00% annualized return rate (for comparison purposes only). Arch Coal has a current annual dividend yield of 0.76%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]