Allstate (ALL) 11/6/09 PriceWatch Alert Targets 7.92% Downside Protection

Posted: Friday, November 06, 2009 8:38 AM EDT
By: Market Intelligence Center Staff

Allstate (NYSE: ALL) closed yesterday at $29.05. So far the stock has hit a 52-week low of $13.77 and 52-week high of $33.50. Allstate stock has been showing support around 27.02 and resistance in the 30.32 range. Technical indicators for the stock are Bearish and S&P gives ALL a weak 2 STAR (out of 5) sell rating. ALL appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 28 covered call (AJR AB) for a net debit in the $26.75 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 7.92% downside protection and a 4.67% assigned return rate for a 24.02% 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 ALL Jan '11 15 Call (VLS AC) and selling the Jan '10 28 call (AJR AB) for an $11.70 debit. The trade has a 71 day life and would provide 8.09% downside protection and an 11.11% assigned return rate for a 57.00% annualized return rate (for comparison purposes only). Allstate has a current annual dividend yield of 2.69%. [FBB-Seven Summits Research]