Rio Tinto PLC (RTP) 11/20/09 PriceWatch Alert With 8.98% Downside Protection

Posted: Friday, November 20, 2009 8:15 AM EDT
By: Market Intelligence Center Staff

Rio Tinto PLC (NYSE: RTP) closed yesterday at $213.85. So far the stock has hit a 52-week low of $59.20 and 52-week high of $223.75. Rio Tinto PLC stock has been showing support around 208.47 and resistance in the 218.89 range. Technical indicators for the stock are Bullish and S&P gives RTP a neutral 3 STAR (out of 5) hold rating. RTP appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '10 210 covered call (RJT AB) for a net debit in the $194.65 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 8.98% downside protection and a 7.89% assigned return rate for a 50.50% 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 RTP Jan '11 125 Call (ZLR AE) and selling the Jan '10 210 call (RJT AB) for a $75.95 debit. The trade has a 57 day life and would provide 6.03% downside protection and an 11.92% assigned return rate for a 76.00% annualized return rate (for comparison purposes only). Rio Tinto PLC has a current annual dividend yield of 1.23%. [FBB-Seven Summits Research]