Select Sector SPDR-Financial (XLF) 11/19/09 PriceWatch Alert With 13.95% Downside Protection

Posted: Thursday, November 19, 2009 8:08 AM EDT
By: Market Intelligence Center Staff

Select Sector SPDR-Financial (PCX: XLF) closed yesterday at $14.98. So far XLF has hit a 52-week low of $5.88 and 52-week high of $15.76. XLF has been showing support around 14.76 and resistance in the 15.10 range. Technical indicators are Bullish. XLF appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jun '10 14 covered call (XJZ FN) for a net debit in the $12.89 area. That is also the break even stock price for this trade. This covered call has a 212 day duration, provides 13.95% downside protection and an 8.61% assigned return rate for a 14.83% 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 XLF Jan '11 9 Call (VKP AI) and selling the Jun '10 14 call (XJZ FN) for a $4.16 debit. The trade has a 212 day life and would provide 12.15% downside protection and a 20.19% assigned return rate for a 35.00% annualized return rate (for comparison purposes only). [THA-Seven Summits Research]