Pfizer (PFE) Trading Strategies With Downside Protection

Posted: Wednesday, November 18, 2009 9:25 AM EDT
By: Market Intelligence Center Staff

Pfizer (NYSE: PFE) closed yesterday at $17.94. So far the stock has hit a 52-week low of $11.62 and 52-week high of $18.48. Pfizer stock has been showing support around 17.65 and resistance in the 18.09 range. Technical indicators for the stock are Bullish and S&P gives PFE a positive 4 STAR (out of 5) buy rating. PFE appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Mar '10 18 covered call (PFE CR) for a net debit in the $16.85 area. That is also the break even stock price for this trade. This covered call has a 122 day duration, provides 6.08% downside protection and a 6.82% assigned return rate for a 20.42% 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 PFE Jan '11 12.50 Call (VPE AV) and selling the Mar '10 18 call (PFE CR) for a $4.71 debit. The trade has a 122 day life and would provide 4.07% downside protection and a 16.77% assigned return rate for a 50.00% annualized return rate (for comparison purposes only). Pfizer has a current annual dividend yield of 3.64%. [WBA-Seven Summits Research]