Select Sector SPDR-Utilities (XLU) 11/13/09 PriceWatch Alert Down To $27.88 Break Even

Posted: Friday, November 13, 2009 8:20 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Utilities (PCX: XLU) closed yesterday at $29.10. So far XLU has hit a 52-week low of $22.48 and 52-week high of $30.47. XLU has been showing support around 28.75 and resistance in the 29.75 range. Technical indicators are Bullish. XLU appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 29 covered call (XLU CC) for a net debit in the $27.88 area. That is also the break even stock price for this trade. This covered call has a 127 day duration, provides 4.19% downside protection and a 4.02% assigned return rate for an 11.55% 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 XLU Jan '11 25 Call (ORU AY) and selling the Mar '10 29 call (XLU CC) for a $3.43 debit. The trade has a 127 day life and would provide 2.30% downside protection and a 16.62% assigned return rate for a 48.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]