KB Home (KBH) 10/20/09 PriceWatch Alert Up To 18.50% Return

Posted: Tuesday, October 20, 2009 8:41 AM EDT

KB Home (NYSE: KBH) closed yesterday at $15.46. So far the stock has hit a 52-week low of $6.90 and 52-week high of $20.70. KB Home stock has been showing support around 14.95 and resistance in the 16.31 range. Technical indicators for the stock are Bearish and S&P gives KBH a neutral 3 STAR (out of 5) hold rating. KBH appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Apr '10 12.50 covered call (KBH DV) for a net debit in the $11.46 area. That is also the break even stock price for this trade. This covered call has a 179 day duration, provides 25.87% downside protection and a 9.08% assigned return rate for an 18.50% 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 KBH Jan '11 5 Call (OHK AA) and selling the Apr '10 12.50 call (KBH DV) for a $7.20 debit. The trade has a 179 day life and would provide 21.09% downside protection and a 4.17% assigned return rate for an 8.00% annualized return rate (for comparison purposes only). KB Home has a current annual dividend yield of 1.55%. [ATU-Seven Summits Research]

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