Dow Chemical (DOW) 10/28/09 PriceWatch Alert With 15.69% Downside Protection

Posted: Wednesday, October 28, 2009 8:23 AM EDT
By: Market Intelligence Center Staff

Dow Chemical (NYSE: DOW) closed yesterday at $24.85. So far the stock has hit a 52-week low of $5.89 and 52-week high of $27.39. Dow Chemical stock has been showing support around 24.29 and resistance in the 25.69 range. Technical indicators for the stock are Bullish and S&P gives DOW a neutral 3 STAR (out of 5) hold rating. DOW appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jun '10 24 covered call (DOW FE) for a net debit in the $20.95 area. That is also the break even stock price for this trade. This covered call has a 234 day duration, provides 15.69% downside protection and a 14.56% assigned return rate for a 22.71% 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 DOW Jan '11 15 Call (VDO AC) and selling the Jun '10 24 call (DOW FE) for a $7.00 debit. The trade has a 234 day life and would provide 11.47% downside protection and a 28.57% assigned return rate for a 45.00% annualized return rate (for comparison purposes only). Dow Chemical has a current annual dividend yield of 2.39%. [WBA-Seven Summits Research]