Home Depot (HD) 11/20/09 PriceWatch Alert With $25.85 Break Even

Posted: Friday, November 20, 2009 8:31 AM EDT

Home Depot (NYSE: HD) closed yesterday at $27.11. So far the stock has hit a 52-week low of $17.46 and 52-week high of $28.44. Home Depot stock has been showing support around 26.61 and resistance in the 27.49 range. Technical indicators for the stock are Bullish and S&P gives HD a neutral 3 STAR (out of 5) hold rating. HD appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a May '10 29 covered call (JGL EC) for a net debit in the $25.85 area. That is also the break even stock price for this trade. This covered call has an 183 day duration, provides 4.65% downside protection and a 12.19% assigned return rate for a 24.30% 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 HD Jan '11 22.50 Call (VHD AX) and selling the May '10 29 call (JGL EC) for a $4.74 debit. The trade has an 183 day life and would provide no downside protection and a 37.13% assigned return rate for a 74.00% annualized return rate (for comparison purposes only). Home Depot has a current annual dividend yield of 3.33%. [FBB-Seven Summits Research]

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