Wells Fargo (WFC) 11/18/09 PriceWatch Alert Targets 19.22% Return

Posted: Wednesday, November 18, 2009 8:42 AM EDT
By: Market Intelligence Center Staff

Wells Fargo (NYSE: WFC) closed yesterday at $28.37. So far the stock has hit a 52-week low of $7.80 and 52-week high of $32.76. Wells Fargo stock has been showing support around 27.77 and resistance in the 28.79 range. Technical indicators for the stock are Bullish and S&P gives WFC a neutral 3 STAR (out of 5) hold rating. WFC appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at an Apr '10 25 covered call (FHU DY) for a net debit in the $23.17 area. That is also the break even stock price for this trade. This covered call has a 150 day duration, provides 18.33% downside protection and a 7.90% assigned return rate for a 19.22% 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 WFC Jan '11 7.50 Call (VWF AU) and selling the Apr '10 25 call (FHU DY) for a $15.80 debit. The trade has a 150 day life and would provide 17.87% downside protection and a 10.76% assigned return rate for a 26.00% annualized return rate (for comparison purposes only). Wells Fargo has a current annual dividend yield of 0.72%. [WBA-Seven Summits Research]