Discover Financial Services (DFS) PriceWatch Alert At $6.64 Break Even

Posted: Thursday, June 11, 2009 8:07 AM EDT
By: Market Intelligence Center Staff

Discover Financial Services (NYSE: DFS) closed yesterday at $9.74. So far the stock has hit a 52-week low of $4.73 and 52-week high of $18.15. Discover stock has been showing support around 9.26 and resistance in the 10.22 range. Technical indicators for the stock are Bullish and S&P gives DFS a neutral 3 STAR (out of 5) hold rating. DFS appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 7.50 covered call (DFS AU) for a net debit in the $6.64 area. That is also the break even stock price for this trade. This covered call has a 219 day duration, provides 31.83% downside protection and a 12.95% assigned return rate for a 21.59% 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 DFS Jan '10 5 Call (DFS AA) and selling the Jan '10 7.50 call (DFS AU) for a $2.05 debit. The trade has a 219 day life and would provide 27.62% downside protection and a 21.95% assigned return rate for a 37.00% annualized return rate (for comparison purposes only). Discover has a current annual dividend yield of 0.87%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]