Baker Hughes (BHI) 11/20/09 PriceWatch Alert Targets 10.20% Downside Protection

Posted: Friday, November 20, 2009 8:40 AM EDT
By: Market Intelligence Center Staff

Baker Hughes (NYSE: BHI) closed yesterday at $41.18. So far the stock has hit a 52-week low of $24.40 and 52-week high of $48.19. Baker Hughes stock has been showing support around 40.28 and resistance in the 42.44 range. Technical indicators for the stock are Bearish and S&P gives BHI a neutral 3 STAR (out of 5) hold rating. BHI appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 42 covered call (BIJ DP) for a net debit in the $36.98 area. That is also the break even stock price for this trade. This covered call has a 148 day duration, provides 10.20% downside protection and a 13.57% assigned return rate for a 33.48% 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 BHI Jan '11 25 Call (VBH AE) and selling the Apr '10 42 call (BIJ DP) for a $13.50 debit. The trade has a 148 day life and would provide 6.51% downside protection and a 25.93% assigned return rate for a 64.00% annualized return rate (for comparison purposes only). Baker Hughes has a current annual dividend yield of 1.39%. [FBB-Seven Summits Research]