Wells Fargo (WFC) 11/6/09 PriceWatch Alert With $22.89 Break Even

Posted: Friday, November 06, 2009 8:26 AM EDT

Wells Fargo (NYSE: WFC) closed yesterday at $27.29. So far the stock has hit a 52-week low of $7.80 and 52-week high of $32.76. Wells Fargo stock has been showing support around 26.21 and resistance in the 27.87 range. Technical indicators for the stock are Bearish and S&P gives WFC a neutral 3 STAR (out of 5) hold rating. WFC appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Jan '10 24 covered call (FHU AX) for a net debit in the $22.89 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 16.12% downside protection and a 4.85% assigned return rate for a 24.93% 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 WFC Jan '11 5 Call (VWF AA) and selling the Jan '10 24 call (FHU AX) for a $17.90 debit. The trade has a 71 day life and would provide 16.09% downside protection and a 6.15% assigned return rate for a 32.00% annualized return rate (for comparison purposes only). Wells Fargo has a current annual dividend yield of 0.72%. [FBB-Seven Summits Research]

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