UltraShort S&P500 ProShares (SDS) 11/18/09 PriceWatch Alert With $31.52 Break Even

Posted: Wednesday, November 18, 2009 8:34 AM EDT
By: Market Intelligence Center Staff

UltraShort S&P500 ProShares (PCX: SDS) closed yesterday at $35.72. So far SDS has hit a 52-week low of $35.50 and 52-week high of $133.20. SDS has been showing support around 35.33 and resistance in the 36.49 range. Technical indicators are Bearish. SDS appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Mar '10 35 covered call (SSH CU) for a net debit in the $31.52 area. That is also the break even stock price for this trade. This covered call has a 122 day duration, provides 11.76% downside protection and an 11.04% assigned return rate for a 33.03% 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 SDS Jan '11 20 Call (VKB AT) and selling the Mar '10 35 call (SSH CU) for a $13.55 debit. The trade has a 122 day life and would provide 6.08% downside protection and a 10.70% assigned return rate for a 32.00% annualized return rate (for comparison purposes only). [WBA-Seven Summits Research]