Northrop Grumman (NOC) 11/16/09 PriceWatch Alert With 3.62% Downside Protection

Posted: Monday, November 16, 2009 8:41 AM EDT
By: Market Intelligence Center Staff

Northrop Grumman (NYSE: NOC) ended the last trading session at $55.27. So far the stock has hit a 52-week low of $33.81 and 52-week high of $55.50. Northrop Grumman stock has been showing support around 53.90 and resistance in the 56.18 range. Technical indicators for the stock are Bullish and S&P gives NOC a neutral 3 STAR (out of 5) hold rating. NOC appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Jan '10 55 covered call (NOC AK) for a net debit in the $53.27 area. That is also the break even stock price for this trade. This covered call has a 61 day duration, provides 3.62% downside protection and a 3.25% assigned return rate for a 19.43% 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 NOC Jan '11 40 Call (VOJ AH) and selling the Jan '10 55 call (NOC AK) for a $13.40 debit. The trade has a 61 day life and would provide 3.38% downside protection and an 11.94% assigned return rate for a 71.00% annualized return rate (for comparison purposes only). Northrop Grumman has a current annual dividend yield of 3.14%. [ABR-Seven Summits Research]