Massey Energy (MEE) 10/26/09 PriceWatch Alert With 17.38% Downside Protection

Posted: Monday, October 26, 2009 8:16 AM EDT
By: Market Intelligence Center Staff

Massey Energy (NYSE: MEE) ended the last trading session at $31.64. So far the stock has hit a 52-week low of $9.62 and 52-week high of $34.63. Massey Energy stock has been showing support around 30.19 and resistance in the 34.15 range. Technical indicators for the stock are Bullish and S&P gives MEE a neutral 3 STAR (out of 5) hold rating. MEE appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '10 30 covered call (MEE DF) for a net debit in the $26.14 area. That is also the break even stock price for this trade. This covered call has a 173 day duration, provides 17.38% downside protection and a 14.77% assigned return rate for a 31.16% 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 MEE Jan '11 10 Call (VHK AB) and selling the Apr '10 30 call (MEE DF) for a $17.80 debit. The trade has a 173 day life and would provide 12.14% downside protection and a 12.36% assigned return rate for a 26.00% annualized return rate (for comparison purposes only). Massey Energy has a current annual dividend yield of 0.72%. [ABR-Seven Summits Research]