Merck (MRK) 11/2/09 PriceWatch Alert Bearish Price Movement

Posted: Monday, November 02, 2009 8:24 AM EDT
By: Market Intelligence Center Staff

Merck (NYSE: MRK) ended the last trading session at $30.93. 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 30.23 and resistance in the 32.13 range. Technical indicators for the stock are Bearish 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 Jan '10 30 covered call (MZR AF) for a net debit in the $28.83 area. That is also the break even stock price for this trade. This covered call has a 75 day duration, provides 6.79% downside protection and a 4.06% assigned return rate for a 19.75% 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 22.50 Call (VMK AX) and selling the Jan '10 30 call (MZR AF) for a $7.15 debit. The trade has a 75 day life and would provide 4.14% downside protection and a 4.90% assigned return rate for a 24.00% annualized return rate (for comparison purposes only). Merck has a current annual dividend yield of 4.74%. [ABR-Seven Summits Research]