Goodyear Tire and Rubber (GT) 10/15/09 PriceWatch Alert Targets 20.10% Return

Posted: Thursday, October 15, 2009 8:19 AM EDT

Goodyear Tire and Rubber (NYSE: GT) closed yesterday at $17.52. So far the stock has hit a 52-week low of $3.17 and 52-week high of $18.84. Goodyear stock has been showing support around 16.98 and resistance in the 17.92 range. Technical indicators for the stock are Bullish and S&P gives GT a neutral 3 STAR (out of 5) hold rating. GT appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 15 covered call (GT DC) for a net debit in the $13.62 area. That is also the break even stock price for this trade. This covered call has an 184 day duration, provides 22.26% downside protection and a 10.13% assigned return rate for a 20.10% 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 GT Jan '11 5 Call (VYR AA) and selling the Apr '10 15 call (GT DC) for a $9.05 debit. The trade has an 184 day life and would provide 19.81% downside protection and a 10.50% assigned return rate for a 21.00% annualized return rate (for comparison purposes only). Goodyear does not pay dividends at this time. [THA-Seven Summits Research]

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