Goodyear Tire and Rubber (GT) 10/26/09 PriceWatch Alert Up To 21.97% Downside Protection

Posted: Monday, October 26, 2009 8:44 AM EDT

Goodyear Tire and Rubber (NYSE: GT) ended the last trading session at $17.75. So far the stock has hit a 52-week low of $3.17 and 52-week high of $18.84. Goodyear stock has been showing support around 17.23 and resistance in the 18.23 range. Technical indicators for the stock are Bullish and S&P gives GT a neutral 3 STAR (out of 5) hold rating. GT appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 15 covered call (GT DC) for a net debit in the $13.85 area. That is also the break even stock price for this trade. This covered call has a 173 day duration, provides 21.97% downside protection and an 8.30% assigned return rate for a 17.52% 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 GT Jan '11 5 Call (VYR AA) and selling the Apr '10 15 call (GT DC) for a $9.15 debit. The trade has a 173 day life and would provide 20.28% downside protection and a 9.29% assigned return rate for a 20.00% annualized return rate (for comparison purposes only). Goodyear does not pay dividends at this time. [ABR-Seven Summits Research]

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