Electronic Arts (ERTS) 11/12/09 PriceWatch Alert Targets 14.09% Downside Protection

Posted: Thursday, November 12, 2009 8:43 AM EDT
By: Market Intelligence Center Staff

Electronic Arts (NasdaqNM: ERTS) closed yesterday at $18.45. So far the stock has hit a 52-week low of $14.24 and 52-week high of $23.76. Electronic Arts stock has been showing support around 18.06 and resistance in the 18.70 range. Technical indicators for the stock are Bearish and S&P gives ERTS a weak 2 STAR (out of 5) sell rating. ERTS appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jun '10 18 covered call (EZQ FR) for a net debit in the $15.85 area. That is also the break even stock price for this trade. This covered call has a 219 day duration, provides 14.09% downside protection and a 13.56% assigned return rate for a 22.61% 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 ERTS Jan '11 10 Call (VZW AB) and selling the Jun '10 18 call (EZQ FR) for a $6.50 debit. The trade has a 219 day life and would provide 10.57% downside protection and a 23.08% assigned return rate for a 38.00% annualized return rate (for comparison purposes only). Electronic Arts does not pay dividends at this time. [THA-Seven Summits Research]