Starwood Hotels and Resorts (HOT) 11/3/09 PriceWatch Alert Targets 20.03% Downside Protection

Posted: Tuesday, November 03, 2009 8:47 AM EDT
By: Market Intelligence Center Staff

Starwood Hotels and Resorts (NYSE: HOT) closed yesterday at $28.46. So far the stock has hit a 52-week low of $8.99 and 52-week high of $36.45. Starwood Hotels stock has been showing support around 26.75 and resistance in the 30.29 range. Technical indicators for the stock are Bearish and S&P gives HOT a very weak 1 STAR (out of 5) strong sell rating. HOT appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a May '10 26 covered call (HOT EH) for a net debit in the $22.76 area. That is also the break even stock price for this trade. This covered call has a 200 day duration, provides 20.03% downside protection and a 14.24% assigned return rate for a 25.98% 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 HOT Jan '11 12.50 Call (VVO AV) and selling the May '10 26 call (HOT EH) for an $11.40 debit. The trade has a 200 day life and would provide 16.02% downside protection and an 18.42% assigned return rate for a 34.00% annualized return rate (for comparison purposes only). Starwood Hotels has a current annual dividend yield of 2.96%. [ATU-Seven Summits Research]