Dow Chemical (DOW) 11/5/09 PriceWatch Alert Targets 15.21% Downside Protection

Posted: Thursday, November 05, 2009 8:47 AM EDT
By: Market Intelligence Center Staff

Dow Chemical (NYSE: DOW) closed yesterday at $23.67. So far the stock has hit a 52-week low of $5.89 and 52-week high of $27.39. Dow Chemical stock has been showing support around 22.84 and resistance in the 24.80 range. Technical indicators for the stock are Bearish and S&P gives DOW a neutral 3 STAR (out of 5) hold rating. DOW appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 21 covered call (DOW AY) for a net debit in the $20.07 area. That is also the break even stock price for this trade. This covered call has a 72 day duration, provides 15.21% downside protection and a 4.63% assigned return rate for a 23.49% 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 DOW Jan '11 7.50 Call (VDO AU) and selling the Jan '10 21 call (DOW AY) for a $12.60 debit. The trade has a 72 day life and would provide 15.08% downside protection and a 7.14% assigned return rate for a 36.00% annualized return rate (for comparison purposes only). Dow Chemical has a current annual dividend yield of 2.52%. [THA-Seven Summits Research]