AES (AES) Flat On Friday With Bullish Technicals And Just Above Resistance

Posted: Monday, October 12, 2009 8:31 AM EDT

AES (NYSE: AES) closed Friday at $14.81. So far the stock has hit a 52-week low of $4.80 and 52-week high of $15.37. AES stock has been showing support around 14.66 and resistance in the 15.04 range. Technical indicators for the stock are Bullish and S&P gives AES a positive 4 STAR (out of 5) buy rating. AES appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a May '10 12.50 covered call (AES EV) for a net debit in the $11.51 area. That is also the break even stock price for this trade. This covered call has a 222 day duration, provides 22.28% downside protection and an 8.60% assigned return rate for a 14.14% 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 AES Jan '11 5 Call (VNU AA) and selling the May '10 12.50 call (AES EV) for a $6.90 debit. The trade has a 222 day life and would provide 19.65% downside protection and an 8.70% assigned return rate for a 14.00% annualized return rate (for comparison purposes only). AES does not pay dividends at this time. [ABR-Seven Summits Research]

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