Watson Pharmaceutical (WPI) Could Fall Through $50.30 Support Level

Watson Pharmaceuticals Inc. closed Thursday's trading session at $51.67. In the past year, the stock has hit a 52-week low of $37.26 and 52-week high of $52.20. Watson Pharmaceutical stock has been showing support around $50.30 and resistance in the $52.48 range. Technical indicators for the stock are Bullish and S&P gives WPI a positive 4 STARS (out of 5) buy rating. For a hedged play on this stock, look at the Feb '11 $50.00 covered call for a net debit in the $48.87 area. That is also the break-even stock price for this trade. This covered call has a duration of 54 days, provides 5.42% downside protection and an assigned return rate of 2.31% for an annualized return rate of 15.63% (for 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 WPI Jan '12 $35.00 call and selling the Feb '11 $50.00 call for a total debit of $14.40. The trade has a lifespan of 54 days and would provide 4.39% downside protection and an assigned return rate of 4.17% for an annualized return rate of 28% (for comparison purposes only). Watson Pharmaceutical does not pay dividends at this time