CVS Caremark (CVS) 11/20/09 PriceWatch Alert Targets 21.55% Return

Posted: Friday, November 20, 2009 8:28 AM EDT
By: Market Intelligence Center Staff

CVS Caremark (NYSE: CVS) closed yesterday at $31.08. So far the stock has hit a 52-week low of $23.19 and 52-week high of $38.27. CVS Caremark stock has been showing support around 30.01 and resistance in the 31.93 range. Technical indicators for the stock are Bearish and S&P gives CVS a positive 4 STAR (out of 5) buy rating. CVS appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a May '10 32 covered call (CVS EK) for a net debit in the $28.88 area. That is also the break even stock price for this trade. This covered call has an 183 day duration, provides 7.08% downside protection and a 10.80% assigned return rate for a 21.55% 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 CVS Jan '11 17.50 Call (OHS AT) and selling the May '10 32 call (CVS EK) for an $11.75 debit. The trade has an 183 day life and would provide 5.89% downside protection and a 23.40% assigned return rate for a 47.00% annualized return rate (for comparison purposes only). CVS Caremark has a current annual dividend yield of 1.00%. [FBB-Seven Summits Research]