Semiconductor HOLDRS (SMH) 11/3/09 PriceWatch Alert Up To 7.07% Downside Protection

Posted: Tuesday, November 03, 2009 8:26 AM EDT

Semiconductor HOLDRS (AMEX: SMH) closed yesterday at $24.17. So far SMH has hit a 52-week low of $14.45 and 52-week high of $26.92. SMH has been showing support around 23.61 and resistance in the 24.71 range. Technical indicators are Bearish. SMH appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Feb '10 24 covered call (SMH BP) for a net debit in the $22.46 area. That is also the break even stock price for this trade. This covered call has a 109 day duration, provides 7.07% downside protection and a 6.86% assigned return rate for a 22.96% 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 SMH Jan '11 17.50 Call (OTO AW) and selling the Feb '10 24 call (SMH BP) for a $5.64 debit. The trade has a 109 day life and would provide 4.26% downside protection and a 15.25% assigned return rate for a 51.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]

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