Massey Energy (MEE) 11/2/09 PriceWatch Alert With 18.91% Downside Protection

Posted: Monday, November 02, 2009 8:15 AM EDT

Massey Energy (NYSE: MEE) ended the last trading session at $29.09. So far the stock has hit a 52-week low of $9.62 and 52-week high of $34.63. Massey Energy stock has been showing support around 27.42 and resistance in the 31.54 range. Technical indicators for the stock are Bearish and S&P gives MEE a neutral 3 STAR (out of 5) hold rating. MEE appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 25 covered call (MEE AE) for a net debit in the $23.59 area. That is also the break even stock price for this trade. This covered call has a 75 day duration, provides 18.91% downside protection and a 5.98% assigned return rate for a 29.09% 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 MEE Jan '11 5 Call (VHK AA) and selling the Jan '10 25 call (MEE AE) for an $18.95 debit. The trade has a 75 day life and would provide 17.67% downside protection and a 5.54% assigned return rate for a 27.00% annualized return rate (for comparison purposes only). Massey Energy has a current annual dividend yield of 0.84%. [ABR-Seven Summits Research]

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