Vanguard Emerging Markets ETF (VWO) 11/10/09 PriceWatch Alert Could Hit 16.67% Return

Posted: Tuesday, November 10, 2009 8:19 AM EDT
By: Market Intelligence Center Staff

Vanguard Emerging Markets ETF (PCX: VWO) closed yesterday at $40.97. 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 40.10 and resistance in the 41.42 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 Feb '10 40 covered call (VWO BN) for a net debit in the $38.22 area. That is also the break even stock price for this trade. This covered call has a 102 day duration, provides 6.71% downside protection and a 4.66% assigned return rate for a 16.67% 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 Feb '10 40 call (VWO BN) for a $13.40 debit. The trade has a 102 day life and would provide 6.27% downside protection and an 11.94% assigned return rate for a 43.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]