Limited Brands (LTD) PriceWatch Alert With 20.69% Downside Protection

Posted on Friday, August 29, 2008 8:07 AM

Limited Brands (NYSE: LTD) closed yesterday at $20.78. So far the stock has hit a 52-week low of $14.41 and 52-week high of $24.24. Limited Brands stock has been showing support around 20.07 and resistance in the 21.13 range. Technical indicators for the stock are Bullish and S&P gives LTD a neutral 3 STAR (out of 5) hold rating. LTD appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Jan '09 17.50 covered call (LTD AW) for a net debit in the $16.48 area. That is also the break even stock price for this trade. This covered call has a 141 day duration, provides 20.69% downside protection and a 6.19% assigned return rate for a 16.02% 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 LTD Jan '10 5 Call (WDL AA) and selling the Jan '09 17.50 call (LTD AW) for an $11.40 debit. The trade has a 141 day life and would provide 21.08% downside protection and a 9.65% assigned return rate for a 25.00% annualized return rate (for comparison purposes only). Limited Brands has a current annual dividend yield of 2.93%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]