Continental Airlines (CAL) 11/9/09 PriceWatch Alert With 29.76% Downside Protection

Posted: Monday, November 09, 2009 8:38 AM EDT
By: Market Intelligence Center Staff

Continental Airlines (NYSE: CAL) ended the last trading session at $12.77. So far the stock has hit a 52-week low of $6.37 and 52-week high of $21.83. Continental Airlines stock has been showing support around 11.41 and resistance in the 13.57 range. Technical indicators for the stock are Bearish and S&P gives CAL a positive 4 STAR (out of 5) buy rating. CAL appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jun '10 10 covered call (CAL FB) for a net debit in the $8.97 area. That is also the break even stock price for this trade. This covered call has a 222 day duration, provides 29.76% downside protection and an 11.48% assigned return rate for an 18.88% 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 CAL Jan '11 2.50 Call (OVJ AZ) and selling the Jun '10 10 call (CAL FB) for a $6.65 debit. The trade has a 222 day life and would provide 28.35% downside protection and a 12.78% assigned return rate for a 21.00% annualized return rate (for comparison purposes only). Continental Airlines does not pay dividends at this time. [ABR-Seven Summits Research]