Merck (MRK) 10/29/09 PriceWatch Alert Technicals Showing Neutral

Posted: Thursday, October 29, 2009 8:05 AM EDT

Merck (NYSE: MRK) closed yesterday at $32.05. 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 31.55 and resistance in the 32.95 range. Technical indicators for the stock are Neutral 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 $30.80 area. That is also the break even stock price for this trade. This covered call has a 51 day duration, provides 3.90% downside protection and a 3.90% assigned return rate for a 27.88% 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 20 Call (VMK AD) and selling the Dec '09 32 call (MZR LD) for a $10.75 debit. The trade has a 51 day life and would provide 4.06% downside protection and an 11.63% assigned return rate for an 83.00% annualized return rate (for comparison purposes only). Merck has a current annual dividend yield of 4.75%. [THA-Seven Summits Research]

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