AES (AES) PriceWatch Alert With 12.01% Downside Protection

Posted on Wednesday, August 27, 2008 8:07 AM

AES (NYSE: AES) closed yesterday at $15.41. So far the stock has hit a 52-week low of $14.78 and 52-week high of $23.09. AES stock has been showing support around 14.59 and resistance in the 16.23 range. Technical indicators for the stock are Bearish and S&P gives AES a positive 4 STAR (out of 5) buy rating. AES appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Feb '09 15 covered call (AES BC) for a net debit in the $13.56 area. That is also the break even stock price for this trade. This covered call has a 178 day duration, provides 12.01% downside protection and a 10.62% assigned return rate for a 21.78% 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 AES Jan '10 7.50 Call (WGC AU) and selling the Feb '09 15 call (AES BC) for a $6.90 debit. The trade has a 178 day life and would provide 6.55% downside protection and an 8.70% assigned return rate for an 18.00% annualized return rate (for comparison purposes only). AES 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]