UltraShort Financials ProShares (SKF) 11/20/09 PriceWatch Alert Up To 24.75% Downside Protection

Posted: Friday, November 20, 2009 8:44 AM EDT
By: Market Intelligence Center Staff

UltraShort Financials ProShares (PCX: SKF) closed yesterday at $24.44. So far SKF has hit a 52-week low of $22.36 and 52-week high of $303.82. SKF has been showing support around 23.61 and resistance in the 25.05 range. Technical indicators are Bearish. SKF appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at an Apr '10 20 covered call (FFW DT) for a net debit in the $18.39 area. That is also the break even stock price for this trade. This covered call has a 148 day duration, provides 24.75% downside protection and an 8.75% assigned return rate for a 21.59% 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 SKF Jan '11 5 Call (ZDF AE) and selling the Apr '10 20 call (FFW DT) for a $14.45 debit. The trade has a 148 day life and would provide 20.42% downside protection and a 3.81% assigned return rate for a 9.00% annualized return rate (for comparison purposes only). [FBB-Seven Summits Research]