Merck (MRK) 10/21/09 PriceWatch Alert With $32.02 Break Even

Posted: Wednesday, October 21, 2009 8:25 AM EDT
By: Market Intelligence Center Staff

Merck (NYSE: MRK) closed yesterday at $33.72. So far the stock has hit a 52-week low of $20.05 and 52-week high of $34.18. Merck stock has been showing support around 33.29 and resistance in the 34.39 range. Technical indicators for the stock are Bullish and S&P gives MRK a neutral 3 STAR (out of 5) hold rating. MRK appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Dec '09 33 covered call (MZR LO) for a net debit in the $32.02 area. That is also the break even stock price for this trade. This covered call has a 59 day duration, provides 5.04% downside protection and a 3.06% assigned return rate for an 18.93% 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 MRK Jan '11 22.50 Call (VMK AX) and selling the Dec '09 33 call (MZR LO) for a $9.90 debit. The trade has a 59 day life and would provide 3.91% downside protection and a 6.06% assigned return rate for a 37.00% annualized return rate (for comparison purposes only). Merck has a current annual dividend yield of 4.58%. [WBA-Seven Summits Research]