KB Home (KBH) 10/28/09 PriceWatch Alert Bearish Price Movement

Posted: Wednesday, October 28, 2009 8:08 AM EDT
By: Market Intelligence Center Staff

KB Home (NYSE: KBH) closed yesterday at $15.11. 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 14.56 and resistance in the 16.10 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 $11.31 area. That is also the break even stock price for this trade. This covered call has a 171 day duration, provides 25.15% downside protection and a 10.52% assigned return rate for a 22.46% 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 $6.75 debit. The trade has a 171 day life and would provide 22.24% downside protection and an 11.11% assigned return rate for a 24.00% annualized return rate (for comparison purposes only). KB Home has a current annual dividend yield of 1.58%. [WBA-Seven Summits Research]