KB Home (KBH) 10/22/09 PriceWatch Alert Could Hit 19.11% Return

Posted: Thursday, October 22, 2009 8:25 AM EDT

KB Home (NYSE: KBH) closed yesterday at $15.04. 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 14.53 and resistance in the 15.97 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 $11.44 area. That is also the break even stock price for this trade. This covered call has a 177 day duration, provides 23.94% downside protection and a 9.27% assigned return rate for a 19.11% 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 KBH Jan '11 5 Call (OHK AA) and selling the Apr '10 12.50 call (KBH DV) for a $7.10 debit. The trade has a 177 day life and would provide 19.55% downside protection and a 5.63% assigned return rate for a 12.00% annualized return rate (for comparison purposes only). KB Home has a current annual dividend yield of 1.62%. [THA-Seven Summits Research]

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