Palm (PALM) 10/23/09 PriceWatch Alert Up To 27.16% Downside Protection

Posted: Friday, October 23, 2009 8:07 AM EDT
By: Market Intelligence Center Staff

Palm (NasdaqNM: PALM) closed yesterday at $15.83. 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 15.12 and resistance in the 16.24 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 13 covered call (UPY EM) for a net debit in the $11.53 area. That is also the break even stock price for this trade. This covered call has a 211 day duration, provides 27.16% downside protection and a 12.75% assigned return rate for a 22.05% 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 13 call (UPY EM) for a $6.75 debit. The trade has a 211 day life and would provide 25.77% downside protection and an 18.52% assigned return rate for a 32.00% annualized return rate (for comparison purposes only). Palm does not pay dividends at this time. [FBB-Seven Summits Research]