Select Sector SPDR-Health Care (XLV) 11/3/09 PriceWatch Alert With 4.61% Downside Protection

Posted: Tuesday, November 03, 2009 8:44 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Health Care (PCX: XLV) closed yesterday at $28.19. So far XLV has hit a 52-week low of $21.63 and 52-week high of $29.55. XLV has been showing support around 27.84 and resistance in the 28.58 range. Technical indicators are Bearish. XLV appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 28 covered call (XLV CB) for a net debit in the $26.89 area. That is also the break even stock price for this trade. This covered call has a 137 day duration, provides 4.61% downside protection and a 4.13% assigned return rate for an 11.00% 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 XLV Jan '11 20 Call (VMJ AT) and selling the Mar '10 28 call (XLV CB) for a $7.30 debit. The trade has a 137 day life and would provide 3.16% downside protection and a 9.59% assigned return rate for a 26.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]