Limited Brands (LTD) 10/30/09 PriceWatch Alert Could Hit 10.88% Return

Posted: Friday, October 30, 2009 8:17 AM EDT

Limited Brands (NYSE: LTD) closed yesterday at $18.24. So far the stock has hit a 52-week low of $5.98 and 52-week high of $19.75. Limited Brands stock has been showing support around 16.72 and resistance in the 19.12 range. Technical indicators for the stock are Bullish and S&P gives LTD a neutral 3 STAR (out of 5) hold rating. LTD appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a May '10 15 covered call (LTD EC) for a net debit in the $14.14 area. That is also the break even stock price for this trade. This covered call has a 204 day duration, provides 22.48% downside protection and a 6.08% assigned return rate for a 10.88% 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 LTD Jan '11 10 Call (VLD AB) and selling the May '10 15 call (LTD EC) for a $4.45 debit. The trade has a 204 day life and would provide 20.78% downside protection and a 12.36% assigned return rate for a 22.00% annualized return rate (for comparison purposes only). Limited Brands has a current annual dividend yield of 3.35%. [FBB-Seven Summits Research]

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