Novartis AG (NVS) 10/30/09 PriceWatch Alert Targets 7.25% Downside Protection

Posted: Friday, October 30, 2009 8:32 AM EDT
By: Market Intelligence Center Staff

Novartis AG (NYSE: NVS) closed yesterday at $52.42. So far the stock has hit a 52-week low of $33.34 and 52-week high of $52.51. Novartis AG stock has been showing support around 51.56 and resistance in the 52.92 range. Technical indicators for the stock are Bullish and S&P gives NVS a neutral 3 STAR (out of 5) hold rating. NVS appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 50 covered call (NVS DJ) for a net debit in the $48.62 area. That is also the break even stock price for this trade. This covered call has a 169 day duration, provides 7.25% downside protection and a 2.84% assigned return rate for a 6.13% 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 NVS Jan '11 40 Call (ZAH AH) and selling the Apr '10 50 call (NVS DJ) for a $9.10 debit. The trade has a 169 day life and would provide 6.33% downside protection and a 9.89% assigned return rate for a 21.00% annualized return rate (for comparison purposes only). Novartis AG has a current annual dividend yield of 2.80%. [FBB-Seven Summits Research]