D R Horton (DHI) 10/23/09 PriceWatch Alert Up To 22.44% Downside Protection

Posted: Friday, October 23, 2009 8:40 AM EDT

D R Horton (NYSE: DHI) closed yesterday at $12.70. So far the stock has hit a 52-week low of $3.79 and 52-week high of $13.90. D R Horton stock has been showing support around 11.47 and resistance in the 13.61 range. Technical indicators for the stock are Bullish and S&P gives DHI a positive 4 STAR (out of 5) buy rating. DHI appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a May '10 11 covered call (DHI EK) for a net debit in the $9.85 area. That is also the break even stock price for this trade. This covered call has a 211 day duration, provides 22.44% downside protection and an 11.68% assigned return rate for a 20.20% 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 DHI Jan '11 5 Call (VEI AA) and selling the May '10 11 call (DHI EK) for a $5.30 debit. The trade has a 211 day life and would provide 18.90% downside protection and a 13.21% assigned return rate for a 23.00% annualized return rate (for comparison purposes only). D R Horton has a current annual dividend yield of 1.24%. [FBB-Seven Summits Research]

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