Palm (PALM) 10/21/09 PriceWatch Alert Up To 18.86% Return

Posted: Wednesday, October 21, 2009 8:03 AM EDT

Palm (NasdaqNM: PALM) closed yesterday at $15.71. So far the stock has hit a 52-week low of $1.14 and 52-week high of $18.09. Palm stock has been showing support around 15.14 and resistance in the 16.14 range. Technical indicators for the stock are Bullish and S&P gives PALM a very weak 1 STAR (out of 5) strong sell rating. PALM appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a May '10 12 covered call (UPY EL) for a net debit in the $10.81 area. That is also the break even stock price for this trade. This covered call has a 213 day duration, provides 31.19% downside protection and an 11.01% assigned return rate for an 18.86% 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 PALM Jan '11 5 Call (ZTO AA) and selling the May '10 12 call (UPY EL) for a $6.25 debit. The trade has a 213 day life and would provide 28.39% downside protection and a 12.00% assigned return rate for a 21.00% annualized return rate (for comparison purposes only). Palm does not pay dividends at this time. [WBA-Seven Summits Research]

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