Select Sector SPDR-Consumer Discretionary (XLY) 11/6/09 PriceWatch Alert Up To 7.90% Downside Protection

Posted: Friday, November 06, 2009 8:36 AM EDT

Select Sector SPDR-Consumer Discretionary (PCX: XLY) closed yesterday at $27.85. So far XLY has hit a 52-week low of $15.85 and 52-week high of $28.77. XLY has been showing support around 26.96 and resistance in the 28.34 range. Technical indicators are Bullish. XLY appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 27 covered call (XLY CA) for a net debit in the $25.65 area. That is also the break even stock price for this trade. This covered call has a 134 day duration, provides 7.90% downside protection and a 5.26% assigned return rate for a 14.34% 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 XLY Jan '11 18 Call (ZMP AR) and selling the Mar '10 27 call (XLY CA) for a $7.90 debit. The trade has a 134 day life and would provide 7.00% downside protection and a 13.92% assigned return rate for a 38.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]

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