Aetna (AET) 11/6/09 PriceWatch Alert With $24.90 Break Even

Posted: Friday, November 06, 2009 8:29 AM EDT

Aetna (NYSE: AET) closed yesterday at $28.60. So far the stock has hit a 52-week low of $14.21 and 52-week high of $34.87. Aetna stock has been showing support around 27.75 and resistance in the 29.17 range. Technical indicators for the stock are Bullish and S&P gives AET a positive 4 STAR (out of 5) buy rating. AET appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 28 covered call (AET DL) for a net debit in the $24.90 area. That is also the break even stock price for this trade. This covered call has a 162 day duration, provides 12.94% downside protection and a 12.45% assigned return rate for a 28.05% 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 AET Jan '11 15 Call (VLC AC) and selling the Apr '10 28 call (AET DL) for a $10.70 debit. The trade has a 162 day life and would provide 10.14% downside protection and a 21.50% assigned return rate for a 48.00% annualized return rate (for comparison purposes only). Aetna has a current annual dividend yield of 0.15%. [FBB-Seven Summits Research]

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