Eaton (ETN) 11/3/09 PriceWatch Alert Up To 6.81% Downside Protection

Posted: Tuesday, November 03, 2009 8:39 AM EDT
By: Market Intelligence Center Staff

Eaton (NYSE: ETN) closed yesterday at $61.63. So far the stock has hit a 52-week low of $30.02 and 52-week high of $65.71. Eaton stock has been showing support around 59.76 and resistance in the 62.94 range. Technical indicators for the stock are Bullish and S&P gives ETN a positive 4 STAR (out of 5) buy rating. ETN appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Jan '10 60 covered call (ETN AL) for a net debit in the $57.43 area. That is also the break even stock price for this trade. This covered call has a 74 day duration, provides 6.81% downside protection and a 4.48% assigned return rate for a 22.07% 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 ETN Jan '11 45 Call (XNT AI) and selling the Jan '10 60 call (ETN AL) for a $13.80 debit. The trade has a 74 day life and would provide 4.59% downside protection and an 8.70% assigned return rate for a 43.00% annualized return rate (for comparison purposes only). Eaton has a current annual dividend yield of 3.23%. [ATU-Seven Summits Research]