PepsiCo (PEP) PriceWatch Alert Could Hit 22.11% Return

Posted on Monday, September 08, 2008 8:07 AM

PepsiCo (NYSE: PEP) ended the last trading session at $68.92. So far the stock has hit a 52-week low of $63.28 and 52-week high of $79.79. PepsiCo stock has been showing support around 67.73 and resistance in the 69.75 range. Technical indicators for the stock are Bullish and S&P gives PEP a positive 4 STAR (out of 5) buy rating. PEP appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '09 72.50 covered call (PEP AA) for a net debit in the $67.17 area. That is also the break even stock price for this trade. This covered call has a 131 day duration, provides 2.54% downside protection and a 7.94% assigned return rate for a 22.11% 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 PEP Jan '10 50 Call (WP AJ) and selling the Jan '09 72.50 call (PEP AA) for an $18.35 debit. The trade has a 131 day life and would provide 0.83% downside protection and a 22.62% assigned return rate for a 63.00% annualized return rate (for comparison purposes only). PepsiCo has a current annual dividend yield of 2.45%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]