American Express (AXP) 11/20/09 PriceWatch Alert Could Hit 38.76% Return

Posted: Friday, November 20, 2009 8:17 AM EDT
By: Market Intelligence Center Staff

American Express (NYSE: AXP) closed yesterday at $41.14. So far the stock has hit a 52-week low of $9.71 and 52-week high of $41.98. American Express stock has been showing support around 40.14 and resistance in the 42.00 range. Technical indicators for the stock are Bullish and S&P gives AXP a neutral 3 STAR (out of 5) hold rating. AXP appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '10 41 covered call (ABZ AX) for a net debit in the $38.66 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 6.03% downside protection and a 6.05% assigned return rate for a 38.76% 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 AXP Jan '11 20 Call (VAX AD) and selling the Jan '10 41 call (ABZ AX) for a $19.17 debit. The trade has a 57 day life and would provide 4.79% downside protection and a 9.55% assigned return rate for a 61.00% annualized return rate (for comparison purposes only). American Express has a current annual dividend yield of 1.74%. [FBB-Seven Summits Research]