Investors: what does this mean?

Question

Technical indicators for the stock are Bearish. For a hedged play on this stock, look at a Mar '08 20 covered call (NSI CD) for a net debit in the $18.63 area. That is also the break even stock price for this trade. This covered call has a 128 day duration, provides 25.27% downside protection and a 7.35% assigned return rate for a 20.97% annualized return rate.

http://www.marketintelligencecenter.com/articles/477186

Answer 1

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Mathematical model, known as technical indicators, predict the stock price will go down before it goes up.

<<< For a hedged play on this stock, look at a Mar '08 20 covered call (NSI CD) for a net debit in the $18.63 area.>>>

A hedged play is one that consists of multiple positions, at least one of which is expected to go up in value if the stock price goes up and at least one of which is expected to go down in value if the stock price goes up.

The hedged play here is buying 100 shares of the stock and selling one NSICD call option. By selling that call option you are giving someone else the right to buy those 100 shares for $20.00 per share anytime before the Saturday following the third Friday in March. If you subtracdt the amount you will receive for selling the option from the price you pay for the stock it should cost you about $18.63 per share.

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If the stock price is above $18.63 on the third Friday of March the trade will make money. If the stock price is below $18.63 on the third Friday of March the trade will lose money.

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The third Friday of March is 128 days away.

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The break even stock price ($18.63) is 25.27% below the current stock price.

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If the stock price is above $20.00 on the thrid Friday in March you will sell the stock for $20.00 per share which is a 7.35% profit on you investment of $18.63 per share.

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Assuming you could make 7.35% every 128 days you would make 20.97% every 365 days.

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Since you asked, I assume you are not really familiar with options and covered calls.

To understand what options are take the "Options Overview" tutorial at

http://www.cboe.com/LearnCenter/Tutorials.aspx

and for more information on covered calls see

http://www.cboe.com/Strategies/EquityOptions/CoveredCalls/Part1.aspx