Norfolk Southern (NSC) 11/20/09 PriceWatch Alert Targets 29.19% Return

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

Norfolk Southern (NYSE: NSC) closed yesterday at $50.92. So far the stock has hit a 52-week low of $26.69 and 52-week high of $52.84. Norfolk Southern stock has been showing support around 50.02 and resistance in the 51.70 range. Technical indicators for the stock are Bullish and S&P gives NSC a positive 4 STAR (out of 5) buy rating. NSC appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '10 50 covered call (JBC AJ) for a net debit in the $47.82 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 6.09% downside protection and a 4.56% assigned return rate for a 29.19% 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 NSC Jan '11 25 Call (OGO AE) and selling the Jan '10 50 call (JBC AJ) for a $22.95 debit. The trade has a 57 day life and would provide 5.83% downside protection and an 8.93% assigned return rate for a 57.00% annualized return rate (for comparison purposes only). Norfolk Southern has a current annual dividend yield of 2.63%. [FBB-Seven Summits Research]