3M (MMM) 11/5/09 PriceWatch Alert Up To 7.56% Downside Protection

Posted: Thursday, November 05, 2009 8:37 AM EDT
By: Market Intelligence Center Staff

3M (NYSE: MMM) closed yesterday at $74.07. So far the stock has hit a 52-week low of $40.87 and 52-week high of $79.25. 3M stock has been showing support around 73.04 and resistance in the 75.80 range. Technical indicators for the stock are Bearish and S&P gives MMM a positive 4 STAR (out of 5) buy rating. MMM appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Jan '10 70 covered call (MMM AN) for a net debit in the $68.47 area. That is also the break even stock price for this trade. This covered call has a 72 day duration, provides 7.56% downside protection and a 2.23% assigned return rate for an 11.33% 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 MMM Jan '11 45 Call (VMU AI) and selling the Jan '10 70 call (MMM AN) for a $24.35 debit. The trade has a 72 day life and would provide 6.37% downside protection and a 2.67% assigned return rate for a 14.00% annualized return rate (for comparison purposes only). 3M has a current annual dividend yield of 2.75%. [THA-Seven Summits Research]