Dow Chemical (DOW) PriceWatch Alert Targets 25.71% Downside Protection

Posted: Tuesday, June 23, 2009 8:07 AM EDT

Dow Chemical (NYSE: DOW) closed yesterday at $15.17. So far the stock has hit a 52-week low of $5.89 and 52-week high of $39.99. Dow Chemical stock has been showing support around 14.47 and resistance in the 16.45 range. Technical indicators for the stock are Bearish and S&P gives DOW a neutral 3 STAR (out of 5) hold rating. DOW appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 12.50 covered call (WDO AV) for a net debit in the $11.27 area. That is also the break even stock price for this trade. This covered call has a 207 day duration, provides 25.71% downside protection and a 10.91% assigned return rate for a 19.24% 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 DOW Jan '10 10 Call (WDO AB) and selling the Jan '10 12.50 call (WDO AV) for a $1.85 debit. The trade has a 207 day life and would provide 21.89% downside protection and a 35.14% assigned return rate for a 62.00% annualized return rate (for comparison purposes only). Dow Chemical has a current annual dividend yield of 3.72%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]

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