Chicago Merchantile Exchange (CME) 11/3/09 PriceWatch Alert With $282.40 Break Even

Posted: Tuesday, November 03, 2009 8:46 AM EDT
By: Market Intelligence Center Staff

Chicago Merchantile Exchange (NasdaqNM: CME) closed yesterday at $305.60. So far the stock has hit a 52-week low of $155.06 and 52-week high of $346.24. Chicago Merchantile Exchange stock has been showing support around 293.84 and resistance in the 314.50 range. Technical indicators for the stock are Bullish and S&P gives CME a neutral 3 STAR (out of 5) hold rating. CME appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 300 covered call (CME AC) for a net debit in the $282.40 area. That is also the break even stock price for this trade. This covered call has a 74 day duration, provides 7.59% downside protection and a 6.23% assigned return rate for a 30.74% 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 CME Jan '11 155 Call (OX AM) and selling the Jan '10 300 call (CME AC) for a $130.30 debit. The trade has a 74 day life and would provide 6.64% downside protection and an 11.28% assigned return rate for a 56.00% annualized return rate (for comparison purposes only). Chicago Merchantile Exchange has a current annual dividend yield of 1.47%. [ATU-Seven Summits Research]