Illinois Tool Works (ITW) 11/6/09 PriceWatch Alert With 9.12% Downside Protection

Posted: Friday, November 06, 2009 8:31 AM EDT

Illinois Tool Works (NYSE: ITW) closed yesterday at $48.27. So far the stock has hit a 52-week low of $25.60 and 52-week high of $49.72. Illinois Tool Works stock has been showing support around 46.32 and resistance in the 49.26 range. Technical indicators for the stock are Bullish and S&P gives ITW a neutral 3 STAR (out of 5) hold rating. ITW appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 45 covered call (ITW AI) for a net debit in the $43.87 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 9.12% downside protection and a 2.58% assigned return rate for a 13.24% 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 ITW Jan '11 30 Call (OQW AF) and selling the Jan '10 45 call (ITW AI) for a $14.10 debit. The trade has a 71 day life and would provide 8.64% downside protection and a 6.38% assigned return rate for a 33.00% annualized return rate (for comparison purposes only). Illinois Tool Works has a current annual dividend yield of 2.64%. [FBB-Seven Summits Research]

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