SanDisk (SNDK) 10/27/09 PriceWatch Alert With 21.03% Downside Protection

Posted: Tuesday, October 27, 2009 8:26 AM EDT

SanDisk (NasdaqNM: SNDK) closed yesterday at $24.01. So far the stock has hit a 52-week low of $5.07 and 52-week high of $24.61. SanDisk stock has been showing support around 21.09 and resistance in the 26.07 range. Technical indicators for the stock are Bullish and S&P gives SNDK a neutral 3 STAR (out of 5) hold rating. SNDK appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 21 covered call (SWQ DU) for a net debit in the $18.96 area. That is also the break even stock price for this trade. This covered call has a 172 day duration, provides 21.03% downside protection and a 10.76% assigned return rate for a 22.83% 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 SNDK Jan '11 7.50 Call (OWS AU) and selling the Apr '10 21 call (SWQ DU) for an $11.90 debit. The trade has a 172 day life and would provide 19.20% downside protection and a 13.45% assigned return rate for a 29.00% annualized return rate (for comparison purposes only). SanDisk does not pay dividends at this time. [ATU-Seven Summits Research]

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