Semiconductor HOLDRS (SMH) PriceWatch Alert Down To $19.50 Break Even

Posted: Monday, July 06, 2009 8:07 AM EDT

Semiconductor HOLDRS (AMEX: SMH) closed yesterday at $21.57. So far SMH has hit a 52-week low of $14.45 and 52-week high of $30.90. SMH has been showing support around 21.23 and resistance in the 21.87 range. Technical indicators are Bullish. SMH appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Nov '09 21 covered call (SMH KU) for a net debit in the $19.50 area. That is also the break even stock price for this trade. This covered call has a 138 day duration, provides 9.60% downside protection and a 7.69% assigned return rate for a 20.35% 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 SMH Jan '11 10 Call (OTO AB) and selling the Nov '09 21 call (SMH KU) for a $9.83 debit. The trade has a 138 day life and would provide 8.07% downside protection and an 11.90% assigned return rate for a 31.00% 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]

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