iShares MSCI EAFE Index (EFA) 11/6/09 PriceWatch Alert Targets 5.14% Downside Protection

Posted: Friday, November 06, 2009 8:28 AM EDT
By: Market Intelligence Center Staff

iShares MSCI EAFE Index (PCX: EFA) closed yesterday at $54.85. So far EFA has hit a 52-week low of $31.56 and 52-week high of $57.46. EFA has been showing support around 54.20 and resistance in the 55.46 range. Technical indicators are Bullish. EFA appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 54 covered call (EFA AB) for a net debit in the $52.03 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 5.14% downside protection and a 3.79% assigned return rate for a 19.46% 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 EFA Jan '11 34 Call (ZST AH) and selling the Jan '10 54 call (EFA AB) for an $18.23 debit. The trade has a 71 day life and would provide 4.78% downside protection and a 9.71% assigned return rate for a 50.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]