Select Sector SPDR-Consumer Staples (XLP) 11/6/09 PriceWatch Alert Up To 4.59% Downside Protection

Posted: Friday, November 06, 2009 8:47 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Consumer Staples (PCX: XLP) closed yesterday at $26.13. So far XLP has hit a 52-week low of $19.28 and 52-week high of $26.66. XLP has been showing support around 25.63 and resistance in the 26.41 range. Technical indicators are Bullish. XLP appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jun '10 26 covered call (XLP FZ) for a net debit in the $24.93 area. That is also the break even stock price for this trade. This covered call has a 225 day duration, provides 4.59% downside protection and a 4.29% assigned return rate for a 6.96% 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 XLP Jan '11 21 Call (ORF AU) and selling the Jun '10 26 call (XLP FZ) for a $4.20 debit. The trade has a 225 day life and would provide 3.56% downside protection and a 19.05% assigned return rate for a 31.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]