Sears (SHLD) PriceWatch Alert With 8.71% Downside Protection

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

Sears (NasdaqNM: SHLD) ended the last trading session at $90.68. So far the stock has hit a 52-week low of $67.36 and 52-week high of $152.91. Sears stock has been showing support around 86.00 and resistance in the 93.90 range. Technical indicators for the stock are Bullish and S&P gives SHLD a weak 2 STAR (out of 5) sell rating. SHLD appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Dec '08 90 covered call (KTQ LR) for a net debit in the $82.78 area. That is also the break even stock price for this trade. This covered call has a 103 day duration, provides 8.71% downside protection and an 8.72% assigned return rate for a 30.91% 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 SHLD Jan '10 50 Call (WNQ AJ) and selling the Dec '08 90 call (KTQ LR) for a $33.55 debit. The trade has a 103 day life and would provide 7.86% downside protection and a 19.23% assigned return rate for a 68.00% annualized return rate (for comparison purposes only). Sears 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]