Pulte Homes Inc. (PHM) 9/25/09 PriceWatch Alert With 23.00% Downside Protection

Posted: Friday, September 25, 2009 8:08 AM EDT

Pulte Homes Inc. (NYSE: PHM) closed yesterday at $11.52. So far the stock has hit a 52-week low of $6.49 and 52-week high of $16.57. Pulte Homes stock has been showing support around 10.82 and resistance in the 12.64 range. Technical indicators for the stock are Bearish and S&P gives PHM a positive 4 STAR (out of 5) buy rating. PHM appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 10 covered call (PHM DB) for a net debit in the $8.87 area. That is also the break even stock price for this trade. This covered call has a 204 day duration, provides 23.00% downside protection and a 12.74% assigned return rate for a 22.79% 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 PHM Jan '11 2.50 Call (OPN AR) and selling the Apr '10 10 call (PHM DB) for a $6.65 debit. The trade has a 204 day life and would provide 20.57% downside protection and a 12.78% assigned return rate for a 23.00% annualized return rate (for comparison purposes only). Pulte Homes does not pay dividends at this time. [FBB-Seven Summits Research]

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