Select Sector SPDR-Technology (XLK) 11/17/09 PriceWatch Alert Targets 13.54% Return

Posted: Tuesday, November 17, 2009 8:40 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Technology (PCX: XLK) closed yesterday at $22.14. So far XLK has hit a 52-week low of $12.94 and 52-week high of $22.18. XLK has been showing support around 21.85 and resistance in the 22.33 range. Technical indicators are Bullish. XLK appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 22 covered call (XLK CV) for a net debit in the $21.04 area. That is also the break even stock price for this trade. This covered call has a 123 day duration, provides 4.97% downside protection and a 4.56% assigned return rate for a 13.54% 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 XLK Jan '11 15 Call (VQP AC) and selling the Mar '10 22 call (XLK CV) for a $6.35 debit. The trade has a 123 day life and would provide 3.57% downside protection and a 10.24% assigned return rate for a 30.00% annualized return rate (for comparison purposes only). [ATU-Seven Summits Research]