International Business Machines (IBM) 11/4/09 PriceWatch Alert Targets 3.01% Downside Protection

Posted: Wednesday, November 04, 2009 8:41 AM EDT
By: Market Intelligence Center Staff

International Business Machines (NYSE: IBM) closed yesterday at $121.16. So far the stock has hit a 52-week low of $69.50 and 52-week high of $128.61. International Business Machines stock has been showing support around 118.97 and resistance in the 122.29 range. Technical indicators for the stock are Bullish and S&P gives IBM a very positive 5 STAR (out of 5) strong buy rating. IBM appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 125 covered call (IBM AE) for a net debit in the $117.51 area. That is also the break even stock price for this trade. This covered call has a 73 day duration, provides 3.01% downside protection and a 6.37% assigned return rate for a 31.87% 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 IBM Jan '11 85 Call (VIB AQ) and selling the Jan '10 125 call (IBM AE) for a $34.20 debit. The trade has a 73 day life and would provide 1.62% downside protection and a 16.96% assigned return rate for an 85.00% annualized return rate (for comparison purposes only). International Business Machines has a current annual dividend yield of 1.82%. [WBA-Seven Summits Research]