Schlumberger (SLB) 11/17/09 PriceWatch Alert With 8.25% Downside Protection

Posted: Tuesday, November 17, 2009 8:14 AM EDT
By: Market Intelligence Center Staff

Schlumberger (NYSE: SLB) closed yesterday at $67.89. So far the stock has hit a 52-week low of $35.05 and 52-week high of $71.10. Schlumberger stock has been showing support around 65.68 and resistance in the 69.44 range. Technical indicators for the stock are Bullish and S&P gives SLB a weak 2 STAR (out of 5) sell rating. SLB appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 65 covered call (SLB AM) for a net debit in the $62.29 area. That is also the break even stock price for this trade. This covered call has a 60 day duration, provides 8.25% downside protection and a 4.35% assigned return rate for a 26.47% 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 SLB Jan '11 35 Call (VWY AG) and selling the Jan '10 65 call (SLB AM) for a $28.15 debit. The trade has a 60 day life and would provide 6.98% downside protection and a 6.57% assigned return rate for a 40.00% annualized return rate (for comparison purposes only). Schlumberger has a current annual dividend yield of 1.30%. [ATU-Seven Summits Research]