AES (AES) 10/28/09 PriceWatch Alert Up To 15.57% Return

Posted: Wednesday, October 28, 2009 8:44 AM EDT

AES (NYSE: AES) closed yesterday at $13.74. So far the stock has hit a 52-week low of $4.80 and 52-week high of $15.44. AES stock has been showing support around 13.10 and resistance in the 14.30 range. Technical indicators for the stock are Bearish and S&P gives AES a positive 4 STAR (out of 5) buy rating. AES appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a May '10 12.50 covered call (AES EV) for a net debit in the $11.49 area. That is also the break even stock price for this trade. This covered call has a 206 day duration, provides 16.38% downside protection and an 8.79% assigned return rate for a 15.57% 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 AES Jan '11 5 Call (VNU AA) and selling the May '10 12.50 call (AES EV) for a $6.75 debit. The trade has a 206 day life and would provide 14.48% downside protection and an 11.11% assigned return rate for a 20.00% annualized return rate (for comparison purposes only). AES does not pay dividends at this time. [WBA-Seven Summits Research]

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