Oil Service HOLDRS (OIH) 11/17/09 PriceWatch Alert Targets 6.33% Downside Protection

Posted: Tuesday, November 17, 2009 8:02 AM EDT
By: Market Intelligence Center Staff

Oil Service HOLDRS (AMEX: OIH) closed yesterday at $126.30. So far OIH has hit a 52-week low of $60.96 and 52-week high of $132.39. OIH has been showing support around 121.70 and resistance in the 129.60 range. Technical indicators are Bullish. OIH appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 125 covered call (OIH AE) for a net debit in the $118.30 area. That is also the break even stock price for this trade. This covered call has a 60 day duration, provides 6.33% downside protection and a 5.66% assigned return rate for a 34.45% 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 OIH Jan '11 75 Call (ZJO AX) and selling the Jan '10 125 call (OIH AE) for a $46.25 debit. The trade has a 60 day life and would provide 4.00% downside protection and an 8.11% assigned return rate for a 49.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]