Barrick Gold (ABX) 11/6/09 PriceWatch Alert Targets 12.40% Downside Protection

Posted: Friday, November 06, 2009 8:33 AM EDT

Barrick Gold (NYSE: ABX) closed yesterday at $40.71. So far the stock has hit a 52-week low of $19.11 and 52-week high of $42.10. Barrick Gold stock has been showing support around 39.38 and resistance in the 41.38 range. Technical indicators for the stock are Bullish and S&P gives ABX a positive 4 STAR (out of 5) buy rating. ABX appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '10 41 covered call (ABX DD) for a net debit in the $35.66 area. That is also the break even stock price for this trade. This covered call has a 162 day duration, provides 12.40% downside protection and a 14.97% assigned return rate for a 33.74% 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 ABX Jan '11 25 Call (VBX AE) and selling the Apr '10 41 call (ABX DD) for a $12.15 debit. The trade has a 162 day life and would provide 8.74% downside protection and a 31.69% assigned return rate for a 71.00% annualized return rate (for comparison purposes only). Barrick Gold has a current annual dividend yield of 1.02%. [FBB-Seven Summits Research]

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