Select Sector SPDR-Financial (XLF) PriceWatch Alert With 14.54% Downside Protection

Posted on Friday, September 05, 2008 8:07 AM

Select Sector SPDR-Financial (AMEX: XLF) closed yesterday at $20.98. So far XLF has hit a 52-week low of $16.77 and 52-week high of $35.97. XLF has been showing support around 20.33 and resistance in the 22.25 range. Technical indicators are Bullish. XLF appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Dec '08 19 covered call (XLF LS) for a net debit in the $17.93 area. That is also the break even stock price for this trade. This covered call has a 106 day duration, provides 14.54% downside protection and a 5.97% assigned return rate for a 20.55% 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 XLF Jan '10 10 Call (WFS AJ) and selling the Dec '08 19 call (XLF LS) for an $8.15 debit. The trade has a 106 day life and would provide 13.49% downside protection and a 10.43% assigned return rate for a 36.00% annualized return rate (for comparison purposes only). [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]