Select Sector SPDR-Materials (XLB) 11/6/09 PriceWatch Alert With 6.41% Downside Protection

Posted: Friday, November 06, 2009 8:40 AM EDT

Select Sector SPDR-Materials (PCX: XLB) closed yesterday at $30.43. So far XLB has hit a 52-week low of $17.83 and 52-week high of $32.78. XLB has been showing support around 29.76 and resistance in the 30.96 range. Technical indicators are Bearish. XLB appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 30 covered call (XLB AD) for a net debit in the $28.48 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 6.41% downside protection and a 5.34% assigned return rate for a 27.44% 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 XLB Jan '11 19 Call (OJL AS) and selling the Jan '10 30 call (XLB AD) for a $10.05 debit. The trade has a 71 day life and would provide 4.53% downside protection and a 9.45% assigned return rate for a 49.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]

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