Schering Plough (SGP) 10/30/09 PriceWatch Alert Could Hit 10.36% Return

Posted: Friday, October 30, 2009 8:25 AM EDT
By: Market Intelligence Center Staff

Schering Plough (NYSE: SGP) closed yesterday at $28.43. So far the stock has hit a 52-week low of $12.85 and 52-week high of $29.92. Schering Plough stock has been showing support around 27.78 and resistance in the 29.08 range. Technical indicators for the stock are Bullish and S&P gives SGP a neutral 3 STAR (out of 5) hold rating. SGP appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Feb '10 28 covered call (SGP BJ) for a net debit in the $27.13 area. That is also the break even stock price for this trade. This covered call has an 113 day duration, provides 4.57% downside protection and a 3.21% assigned return rate for a 10.36% 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 SGP Jan '11 20 Call (VSG AD) and selling the Feb '10 28 call (SGP BJ) for a $7.15 debit. The trade has an 113 day life and would provide 4.50% downside protection and an 11.89% assigned return rate for a 38.00% annualized return rate (for comparison purposes only). Schering Plough has a current annual dividend yield of 0.90%. [FBB-Seven Summits Research]