Humana (HUM) 11/6/09 PriceWatch Alert Up To 8.77% Downside Protection

Posted: Friday, November 06, 2009 8:38 AM EDT
By: Market Intelligence Center Staff

Humana (NYSE: HUM) closed yesterday at $39.91. So far the stock has hit a 52-week low of $18.57 and 52-week high of $46.01. Humana stock has been showing support around 38.43 and resistance in the 41.01 range. Technical indicators for the stock are Bullish and S&P gives HUM a positive 4 STAR (out of 5) buy rating. HUM appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 39 covered call (HUA AG) for a net debit in the $36.41 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 8.77% downside protection and a 7.11% assigned return rate for a 36.57% 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 HUM Jan '11 17.50 Call (VMH AW) and selling the Jan '10 39 call (HUA AG) for a $19.70 debit. The trade has a 71 day life and would provide 6.79% downside protection and a 9.14% assigned return rate for a 47.00% annualized return rate (for comparison purposes only). Humana does not pay dividends at this time. [FBB-Seven Summits Research]