NRG Energy (NRG) 10/23/09 PriceWatch Alert Targets 14.65% Downside Protection

Posted: Friday, October 23, 2009 8:44 AM EDT
By: Market Intelligence Center Staff

NRG Energy (NYSE: NRG) closed yesterday at $27.30. So far the stock has hit a 52-week low of $15.19 and 52-week high of $29.26. NRG Energy stock has been showing support around 25.92 and resistance in the 28.38 range. Technical indicators for the stock are Bearish and S&P gives NRG a positive 4 STAR (out of 5) buy rating. NRG appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Mar '10 25 covered call (NRG CE) for a net debit in the $23.30 area. That is also the break even stock price for this trade. This covered call has a 148 day duration, provides 14.65% downside protection and a 7.30% assigned return rate for a 17.99% 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 NRG Jan '11 7.50 Call (OBD AQ) and selling the Mar '10 25 call (NRG CE) for a $15.90 debit. The trade has a 148 day life and would provide 14.29% downside protection and a 10.06% assigned return rate for a 25.00% annualized return rate (for comparison purposes only). NRG Energy does not pay dividends at this time. [FBB-Seven Summits Research]