Gap Inc. (GPS) NewsBite

Posted on Thursday, June 19, 2008 9:17 AM

Gap (NYSE: GPS) closed yesterday at $17.49. So far the stock has hit a 52-week low of $15.20 and 52-week high of $22.02. Gap stock has been showing support around 17.11 and resistance in the 18.11 range. Technical indicators for the stock are Bearish and S&P gives GPS a neutral 3 STAR (out of 5) hold rating. For a hedged play on this stock, look at a Jan '09 17.50 covered call (VGS AW) for a net debit in the $15.49 area. That is also the break even stock price for this trade. This covered call has a 212 day duration, provides 11.44% downside protection and a 12.98% assigned return rate for a 22.34% 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 '09 15 Call (VGS AC) and selling the Jan '09 17.50 call (VGS AW) for a $1.55 debit. The trade has a 212 day life and would provide 5.37% downside protection and a 61.29% assigned return rate for a 106.00% annualized return rate (for comparison purposes only). Gap has a current annual dividend yield of 1.90%. [IHF - Investors Observer]