Diamond Offshore Drilling (DO) to be added to S&P 500 - Blogging Stocks

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Diamond Offshore Drilling (DO) to be added to S&P 500
Feb 17, 2009 12:05 PM UTC

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Symbol	Sentiment	Start	Return	Closed
DO	n/a
RIG	n/a
WFT	n/a
MHP	n/a

Via BloggingStocks:

Filed under: Earnings reports, Good news, Options, Technical Analysis, Oil, S and P 500

Diamond Offshore Drilling (NYSE: DO - option chain) shares have been just about flat today after Standard & Poor's (NYSE: MHP) announced that the company will be added to the S&P 500 Index on a date still to be determined, replacing Weatherford International Ltd. (NYSE: WFT). This usually causes a surge in stock value as all the ETFs that track the S&P 500 now have to rush to add DO positions.

While DO is not rising today, it is also not falling sharply like the rest of the market, especially when compared to its peers like Transocean (NYSE: RIG), which just reported slowing earnings today and is down by more than 5%. If you think that DO won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on that stock.DO opened this morning at $64.54. So far today the stock has hit a low of $62.72 and a high of $65.85. As of 11:45, DO is trading at $63.42, up 0.01 (0.02%). The chart for DO looks bullish and S&P gives DO a positive 4 STARS (out of 5) buy ranking.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just four months as long as DO is above $50 at March expiration. Diamond Offshore would have to fall by more than 21% before we would start to lose money. Learn more about this type of trade here.

DO hasn't been below $54 at all in the past year and has shown support around $61 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in DO, RIG, WFT, or MHP.

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