Diageo (DEO) 11/20/09 PriceWatch Alert Bullish Price Movement

Posted: Friday, November 20, 2009 8:41 AM EDT
By: Market Intelligence Center Staff

Diageo (NYSE: DEO) closed yesterday at $68.27. So far the stock has hit a 52-week low of $40.93 and 52-week high of $69.54. Diageo stock has been showing support around 67.20 and resistance in the 69.10 range. Technical indicators for the stock are Bullish and S&P gives DEO a neutral 3 STAR (out of 5) hold rating. DEO appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at an Apr '10 65 covered call (DEO DM) for a net debit in the $62.67 area. That is also the break even stock price for this trade. This covered call has a 148 day duration, provides 8.20% downside protection and a 3.72% assigned return rate for a 9.17% 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 DEO Jan '11 45 Call (XND AI) and selling the Apr '10 65 call (DEO DM) for an $18.75 debit. The trade has a 148 day life and would provide 6.62% downside protection and a 6.67% assigned return rate for a 16.00% annualized return rate (for comparison purposes only). Diageo has a current annual dividend yield of 3.27%. [FBB-Seven Summits Research]