Goodyear Tire and Rubber (GT) 10/16/09 PriceWatch Alert Up To 23.02% Downside Protection

Posted: Friday, October 16, 2009 8:12 AM EDT

Goodyear Tire and Rubber (NYSE: GT) closed yesterday at $17.81. 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 18.28 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 $13.71 area. That is also the break even stock price for this trade. This covered call has an 183 day duration, provides 23.02% downside protection and a 9.41% assigned return rate for an 18.77% 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 2.50 Call (VYR AZ) and selling the Apr '10 15 call (GT DC) for an $11.20 debit. The trade has an 183 day life and would provide 23.08% downside protection and an 11.61% assigned return rate for a 23.00% annualized return rate (for comparison purposes only). Goodyear does not pay dividends at this time. [FBB-Seven Summits Research]

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