Gap (GPS) 11/27/09 PriceWatch Alert Targets 22.11% Return

Posted: Thursday, November 26, 2009 8:19 AM EDT

Gap (NYSE: GPS) closed yesterday at $22.42. So far the stock has hit a 52-week low of $9.56 and 52-week high of $23.36. Gap stock has been showing support around 21.81 and resistance in the 22.73 range. Technical indicators for the stock are Bullish and S&P gives GPS a neutral 3 STAR (out of 5) hold rating. GPS appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jun '10 23 covered call (GPS FK) for a net debit in the $20.47 area. That is also the break even stock price for this trade. This covered call has a 204 day duration, provides 8.70% downside protection and a 12.36% assigned return rate for a 22.11% 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 GPS Jan '11 15 Call (VGS AC) and selling the Jun '10 23 call (GPS FK) for a $6.05 debit. The trade has a 204 day life and would provide 6.11% downside protection and a 32.23% assigned return rate for a 58.00% annualized return rate (for comparison purposes only). Gap has a current annual dividend yield of 1.55%. [FBB-Seven Summits Research]

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