Smith International (SII) 11/24/09 PriceWatch Alert With Support Around $26.40

Posted: Tuesday, November 24, 2009 8:26 AM EDT
By: Market Intelligence Center Staff

Smith International (NYSE: SII) closed yesterday at $27.19. So far the stock has hit a 52-week low of $18.23 and 52-week high of $34.46. Smith International stock has been showing support around 26.40 and resistance in the 28.40 range. Technical indicators for the stock are Bearish and S&P gives SII a weak 2 STAR (out of 5) sell rating. SII appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 26 covered call (SII DN) for a net debit in the $23.59 area. That is also the break even stock price for this trade. This covered call has a 144 day duration, provides 13.24% downside protection and a 10.22% assigned return rate for a 25.90% 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 SII Jan '11 17.50 Call (VID AW) and selling the Apr '10 26 call (SII DN) for a $7.30 debit. The trade has a 144 day life and would provide 8.79% downside protection and a 16.44% assigned return rate for a 42.00% annualized return rate (for comparison purposes only). Smith International has a current annual dividend yield of 1.79%. [ATU-Seven Summits Research]