Forest Laboratories (FRX) PriceWatch Alert for October 23, 2009

Posted: Friday, October 23, 2009 8:29 AM EDT
By: Market Intelligence Center Staff

Forest Laboratories (NYSE: FRX) closed yesterday at $28.92. So far the stock has hit a 52-week low of $18.37 and 52-week high of $30.56. Forest Laboratories stock has been showing support around 28.23 and resistance in the 29.37 range. Technical indicators for the stock are Neutral and S&P gives FRX a neutral 3 STAR (out of 5) hold rating. FRX appears on the Investors Observer Stocks In The News list. Deutsche Bank upgraded FRX Thursday to a Buy rating, up from a previous rating of Hold. For a hedged play on this stock, look at a Jan '10 27.50 covered call (FRX AY) for a net debit in the $26.47 area. That is also the break even stock price for this trade. This covered call has an 85 day duration, provides 8.47% downside protection and a 3.89% assigned return rate for a 16.71% 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 FRX Jan '11 15 Call (VFB AC) and selling the Jan '10 27.50 call (FRX AY) for an $11.90 debit. The trade has an 85 day life and would provide 6.98% downside protection and a 5.04% assigned return rate for a 22.00% annualized return rate (for comparison purposes only). Forest Laboratories does not pay dividends at this time. [FBB-Seven Summits Research]