Vanguard Emerging Markets ETF (VWO) 11/9/09 PriceWatch Alert Targets 5.56% Downside Protection

Posted: Monday, November 09, 2009 8:47 AM EDT
By: Market Intelligence Center Staff

Vanguard Emerging Markets ETF (PCX: VWO) ended the last trading session at $39.60. So far VWO has hit a 52-week low of $18.50 and 52-week high of $41.43. VWO has been showing support around 38.95 and resistance in the 40.13 range. Technical indicators are Bullish. VWO appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 39 covered call (VWO AM) for a net debit in the $37.40 area. That is also the break even stock price for this trade. This covered call has a 68 day duration, provides 5.56% downside protection and a 4.28% assigned return rate for a 22.96% 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 VWO Jan '11 25 Call (VOP AY) and selling the Jan '10 39 call (VWO AM) for a $13.15 debit. The trade has a 68 day life and would provide 3.66% downside protection and a 6.46% assigned return rate for a 35.00% annualized return rate (for comparison purposes only). [ABR-Seven Summits Research]