Select Sector SPDR-Financial (XLF) 11/9/09 PriceWatch Alert Could Hit 19.00% Return

Posted: Monday, November 09, 2009 8:23 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Financial (PCX: XLF) ended the last trading session at $14.31. So far XLF has hit a 52-week low of $5.88 and 52-week high of $15.76. XLF has been showing support around 14.00 and resistance in the 14.54 range. Technical indicators are Bearish. XLF appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jun '10 14 covered call (XJZ FN) for a net debit in the $12.55 area. That is also the break even stock price for this trade. This covered call has a 222 day duration, provides 12.30% downside protection and an 11.55% assigned return rate for a 19.00% 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 XLF Jan '11 9 Call (VKP AI) and selling the Jun '10 14 call (XJZ FN) for a $3.89 debit. The trade has a 222 day life and would provide 9.92% downside protection and a 28.53% assigned return rate for a 47.00% annualized return rate (for comparison purposes only). [ABR-Seven Summits Research]