long the BIDU Jan '12 36 Call and selling the Dec '10 103 call f

Baidu.com (BIDU) 10/19/10 PriceWatch Alert With 9.48% Downside Protection
Posted: Tuesday, October 19, 2010 8:41 AM EDT

Baidu.com (NASDAQ: BIDU) closed yesterday at $103.40. So far the stock has hit a 52-week low of $35.30 and 52-week high of $107.19. Baidu.com stock has been showing support around 95.68 and resistance in the 109.44 range. Technical indicators for the stock are Bullish and S&P gives BIDU a neutral 3 STAR (out of 5) hold rating. BIDU appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Dec '10 103 covered call for a net debit in the $93.60 area. That is also the break even stock price for this trade. This covered call has a 60 day duration, provides 9.48% downside protection and a 10.04% assigned return rate for a 61.09% 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 BIDU Jan '12 36 Call and selling the Dec '10 103 call for a $60.60 debit. The trade has a 60 day life and would provide 6.58% downside protection and a 10.56% assigned return rate for a 64.00% annualized return rate (for comparison purposes only). Baidu.com does not pay dividends at this time. [ATU-Seven Summits Research]