Merck (MRK) 10/26/09 PriceWatch Alert Down To $30.98 Break Even

Posted: Monday, October 26, 2009 8:08 AM EDT
By: Market Intelligence Center Staff

Merck (NYSE: MRK) ended the last trading session at $32.43. So far the stock has hit a 52-week low of $20.05 and 52-week high of $34.18. Merck stock has been showing support around 31.75 and resistance in the 33.29 range. Technical indicators for the stock are Bullish and S&P gives MRK a neutral 3 STAR (out of 5) hold rating. MRK appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Dec '09 32 covered call (MZR LD) for a net debit in the $30.98 area. That is also the break even stock price for this trade. This covered call has a 54 day duration, provides 4.47% downside protection and a 3.29% assigned return rate for a 22.25% 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 MRK Jan '11 17.50 Call (VMK AW) and selling the Dec '09 32 call (MZR LD) for a $14.10 debit. The trade has a 54 day life and would provide 2.56% downside protection and a 2.84% assigned return rate for a 19.00% annualized return rate (for comparison purposes only). Merck has a current annual dividend yield of 4.65%. [ABR-Seven Summits Research]