Darden Restaurants (DRI) Just Shy Of Resistance On Heavy Trading Volume

Posted: Thursday, November 19, 2009 8:50 AM EDT

Darden Restaurants (NYSE: DRI) closed yesterday at $32.52. So far the stock has hit a 52-week low of $13.21 and 52-week high of $41.21. Darden Restaurants stock has been showing support around 31.84 and resistance in the 33.00 range. Technical indicators for the stock are Bearish and S&P gives DRI a weak 2 STAR (out of 5) sell rating. DRI appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 32 covered call (DRI AL) for a net debit in the $30.47 area. That is also the break even stock price for this trade. This covered call has a 58 day duration, provides 6.30% downside protection and a 5.02% assigned return rate for a 31.60% 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 DRI Jan '11 20 Call (ZGI AD) and selling the Jan '10 32 call (DRI AL) for a $10.90 debit. The trade has a 58 day life and would provide 4.98% downside protection and a 10.09% assigned return rate for a 64.00% annualized return rate (for comparison purposes only). Darden Restaurants has a current annual dividend yield of 3.05%. [THA-Seven Summits Research]

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