Select Sector SPDR-Technology (XLK) 11/3/09 PriceWatch Alert Up To 12.12% Return

Posted: Tuesday, November 03, 2009 8:27 AM EDT

Select Sector SPDR-Technology (PCX: XLK) closed yesterday at $20.73. So far XLK has hit a 52-week low of $12.94 and 52-week high of $21.70. XLK has been showing support around 20.27 and resistance in the 21.11 range. Technical indicators are Bearish. XLK appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 20 covered call (XLK CT) for a net debit in the $19.13 area. That is also the break even stock price for this trade. This covered call has a 137 day duration, provides 7.72% downside protection and a 4.55% assigned return rate for a 12.12% 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 XLK Jan '11 14 Call (VQP AN) and selling the Mar '10 20 call (XLK CT) for a $5.40 debit. The trade has a 137 day life and would provide 6.42% downside protection and an 11.11% assigned return rate for a 30.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]

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