iShares Nasdaq Biotechnology Index (IBB) 11/3/09 PriceWatch Alert With 7.34% Downside Protection

Posted: Tuesday, November 03, 2009 8:35 AM EDT
By: Market Intelligence Center Staff

iShares Nasdaq Biotechnology Index (NGM: IBB) closed yesterday at $73.61. So far IBB has hit a 52-week low of $57.14 and 52-week high of $84.00. IBB has been showing support around 72.20 and resistance in the 75.50 range. Technical indicators are Bearish. IBB appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 70 covered call (IBB AN) for a net debit in the $68.21 area. That is also the break even stock price for this trade. This covered call has a 74 day duration, provides 7.34% downside protection and a 2.62% assigned return rate for a 12.94% 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 IBB Jan '11 40 Call (XEF AH) and selling the Jan '10 70 call (IBB AN) for a $29.40 debit. The trade has a 74 day life and would provide 5.72% downside protection and a 2.04% assigned return rate for a 10.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]