Baxter International (BAX) 11/3/09 PriceWatch Alert Could Hit 12.23% Return

Posted: Tuesday, November 03, 2009 8:41 AM EDT

Baxter International (NYSE: BAX) closed yesterday at $54.55. So far the stock has hit a 52-week low of $45.46 and 52-week high of $62.50. Baxter International stock has been showing support around 53.78 and resistance in the 55.16 range. Technical indicators for the stock are Bearish and S&P gives BAX a positive 4 STAR (out of 5) buy rating. BAX appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Feb '10 52.50 covered call (BAX BX) for a net debit in the $50.65 area. That is also the break even stock price for this trade. This covered call has a 109 day duration, provides 7.15% downside protection and a 3.65% assigned return rate for a 12.23% 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 BAX Jan '11 40 Call (OZS AH) and selling the Feb '10 52.50 call (BAX BX) for an $11.25 debit. The trade has a 109 day life and would provide 6.05% downside protection and an 11.11% assigned return rate for a 37.00% annualized return rate (for comparison purposes only). Baxter International has a current annual dividend yield of 1.92%. [ATU-Seven Summits Research]

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