Cephalon (CEPH) 11/6/09 PriceWatch Alert With 8.98% Downside Protection

Posted: Friday, November 06, 2009 8:18 AM EDT

Cephalon (NasdaqNM: CEPH) closed yesterday at $57.91. So far the stock has hit a 52-week low of $52.55 and 52-week high of $81.35. Cephalon stock has been showing support around 56.66 and resistance in the 58.54 range. Technical indicators for the stock are Bullish and S&P gives CEPH a positive 4 STAR (out of 5) buy rating. CEPH appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '10 55 covered call (CQE AK) for a net debit in the $52.71 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 8.98% downside protection and a 4.34% assigned return rate for a 22.33% 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 CEPH Jan '11 25 Call (OYL AE) and selling the Jan '10 55 call (CQE AK) for a $28.10 debit. The trade has a 71 day life and would provide 8.31% downside protection and a 6.76% assigned return rate for a 35.00% annualized return rate (for comparison purposes only). Cephalon does not pay dividends at this time. [FBB-Seven Summits Research]

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