LM Ericsson (ERIC) 9/7/10 PriceWatch Alert Could Hit 18.56% Return

Posted: Monday, September 06, 2010 8:05 AM EDT
By: Market Intelligence Center Staff

LM Ericsson (NASDAQ: ERIC) ended the last trading session at $10.39. So far the stock has hit a 52-week low of $8.94 and 52-week high of $12.39. Ericsson stock has been showing support around 10.24 and resistance in the 10.60 range. Technical indicators for the stock are Bearish and S&P gives ERIC a very weak 1 STAR (out of 5) strong sell rating. ERIC appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '11 10 covered call for a net debit in the $8.99 area. That is also the break even stock price for this trade. This covered call has a 221 day duration, provides 13.47% downside protection and an 11.23% assigned return rate for an 18.56% 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 ERIC Jan '12 5 Call and selling the Apr '11 10 call for a $4.25 debit. The trade has a 221 day life and would provide 10.97% downside protection and a 17.65% assigned return rate for a 29.00% annualized return rate (for comparison purposes only). Ericsson has a current annual dividend yield of 1.89%. [ATU-Seven Summits Research]