Discover Financial Services (DFS) PriceWatch Alert for November 9, 2009

Posted: Monday, November 09, 2009 8:41 AM EDT
By: Market Intelligence Center Staff

Discover Financial Services (NYSE: DFS) ended the last trading session at $14.53. So far the stock has hit a 52-week low of $4.73 and 52-week high of $17.36. Discover stock has been showing support around 13.98 and resistance in the 14.92 range. Technical indicators for the stock are Bearish and S&P gives DFS a very positive 5 STAR (out of 5) strong buy rating. DFS appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 12.50 covered call (DFS DV) for a net debit in the $11.58 area. That is also the break even stock price for this trade. This covered call has a 159 day duration, provides 20.30% downside protection and a 7.94% assigned return rate for an 18.24% 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 DFS Jan '11 7.50 Call (XRF AU) and selling the Apr '10 12.50 call (DFS DV) for a $4.65 debit. The trade has a 159 day life and would provide 16.38% downside protection and a 7.53% assigned return rate for a 17.00% annualized return rate (for comparison purposes only). Discover has a current annual dividend yield of 0.57%. [ABR-Seven Summits Research]