Aetna (AET) 10/28/09 PriceWatch Alert With $22.38 Break Even

Posted: Wednesday, October 28, 2009 8:07 AM EDT

Aetna (NYSE: AET) closed yesterday at $26.18. So far the stock has hit a 52-week low of $14.21 and 52-week high of $34.87. Aetna stock has been showing support around 24.54 and resistance in the 27.40 range. Technical indicators for the stock are Bearish and S&P gives AET a neutral 3 STAR (out of 5) hold rating. AET appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 25 covered call (AET DE) for a net debit in the $22.38 area. That is also the break even stock price for this trade. This covered call has a 171 day duration, provides 14.51% downside protection and an 11.71% assigned return rate for a 24.99% 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 AET Jan '11 15 Call (VLC AC) and selling the Apr '10 25 call (AET DE) for an $8.65 debit. The trade has a 171 day life and would provide 9.66% downside protection and a 15.61% assigned return rate for a 33.00% annualized return rate (for comparison purposes only). Aetna has a current annual dividend yield of 0.15%. [WBA-Seven Summits Research]

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