Emerson Electric (EMR) 11/3/09 PriceWatch Alert Bearish Price Movement

Posted: Tuesday, November 03, 2009 8:32 AM EDT

Emerson Electric (NYSE: EMR) closed yesterday at $38.15. So far the stock has hit a 52-week low of $24.39 and 52-week high of $41.65. Emerson Electric stock has been showing support around 36.98 and resistance in the 39.08 range. Technical indicators for the stock are Bearish and S&P gives EMR a neutral 3 STAR (out of 5) hold rating. EMR appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 39 covered call (EMR AY) for a net debit in the $36.65 area. That is also the break even stock price for this trade. This covered call has a 74 day duration, provides 3.93% downside protection and a 6.41% assigned return rate for a 31.63% 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 EMR Jan '11 25 Call (VHH AE) and selling the Jan '10 39 call (EMR AY) for an $11.80 debit. The trade has a 74 day life and would provide 3.54% downside protection and an 18.64% assigned return rate for a 92.00% annualized return rate (for comparison purposes only). Emerson Electric has a current annual dividend yield of 3.36%. [ATU-Seven Summits Research]

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