Nasdaq-100 Index Tracking Stock (QQQQ) 11/12/09 PriceWatch Alert With 4.83% Downside Protection

Posted: Thursday, November 12, 2009 8:04 AM EDT
By: Market Intelligence Center Staff

Nasdaq-100 Index Tracking Stock (NGM: QQQQ) closed yesterday at $43.90. So far QQQQ has hit a 52-week low of $25.05 and 52-week high of $44.14. QQQQ has been showing support around 43.35 and resistance in the 44.41 range. Technical indicators are Bullish. QQQQ appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 43 covered call (QQQ AQ) for a net debit in the $41.78 area. That is also the break even stock price for this trade. This covered call has a 65 day duration, provides 4.83% downside protection and a 2.92% assigned return rate for a 16.40% 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 QQQQ Jan '11 24 Call (XZA AX) and selling the Jan '10 43 call (QQQ AQ) for an $18.04 debit. The trade has a 65 day life and would provide 4.24% downside protection and a 5.32% assigned return rate for a 30.00% annualized return rate (for comparison purposes only). [THA-Seven Summits Research]