Adobe Systems (ADBE) PriceWatch Alert With $38.94 Break Even

Posted on Thursday, September 04, 2008 8:07 AM

Adobe Systems (NasdaqNM: ADBE) closed yesterday at $43.14. So far the stock has hit a 52-week low of $30.70 and 52-week high of $48.47. Adobe Systems stock has been showing support around 42.20 and resistance in the 43.94 range. Technical indicators for the stock are Bullish and S&P gives ADBE a neutral 3 STAR (out of 5) hold rating. ADBE appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '09 42.50 covered call (AEQ AV) for a net debit in the $38.94 area. That is also the break even stock price for this trade. This covered call has a 135 day duration, provides 9.74% downside protection and a 9.14% assigned return rate for a 24.72% 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 ADBE Jan '10 20 Call (WAE AD) and selling the Jan '09 42.50 call (AEQ AV) for a $20.30 debit. The trade has a 135 day life and would provide 6.58% downside protection and a 10.84% assigned return rate for a 29.00% annualized return rate (for comparison purposes only). Adobe Systems 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]