Encana (ECA) 11/20/09 PriceWatch Alert Could Hit 18.85% Return

Posted: Friday, November 20, 2009 8:47 AM EDT
By: Market Intelligence Center Staff

Encana (NYSE: ECA) closed yesterday at $53.27. So far the stock has hit a 52-week low of $34.00 and 52-week high of $63.19. Encana stock has been showing support around 51.82 and resistance in the 55.38 range. Technical indicators for the stock are Bearish and S&P gives ECA a neutral 3 STAR (out of 5) hold rating. ECA appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '10 50 covered call (ECA AJ) for a net debit in the $48.57 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 8.82% downside protection and a 2.94% assigned return rate for an 18.85% 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 ECA Jan '11 30 Call (ZBM AF) and selling the Jan '10 50 call (ECA AJ) for an $18.85 debit. The trade has a 57 day life and would provide 8.30% downside protection and a 6.10% assigned return rate for a 39.00% annualized return rate (for comparison purposes only). Encana has a current annual dividend yield of 2.89%. [FBB-Seven Summits Research]