KB Home (KBH) 10/23/09 PriceWatch Alert Up To 21.65% Downside Protection

Posted: Friday, October 23, 2009 8:07 AM EDT

KB Home (NYSE: KBH) closed yesterday at $16.17. 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 14.21 and resistance in the 17.47 range. Technical indicators for the stock are Bullish 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 14 covered call (KBH DQ) for a net debit in the $12.67 area. That is also the break even stock price for this trade. This covered call has a 176 day duration, provides 21.65% downside protection and a 10.50% assigned return rate for a 21.77% 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 7.50 Call (OHK AU) and selling the Apr '10 14 call (KBH DQ) for a $5.85 debit. The trade has a 176 day life and would provide 17.44% downside protection and an 11.11% assigned return rate for a 23.00% annualized return rate (for comparison purposes only). KB Home has a current annual dividend yield of 1.63%. [FBB-Seven Summits Research]

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