LM Ericsson (ERIC) 11/6/09 PriceWatch Alert Could Hit 21.47% Return

Posted: Friday, November 06, 2009 8:33 AM EDT

LM Ericsson (NasdaqNM: ERIC) closed yesterday at $10.38. So far the stock has hit a 52-week low of $5.49 and 52-week high of $10.92. Ericsson stock has been showing support around 10.17 and resistance in the 10.51 range. Technical indicators for the stock are Bullish and S&P gives ERIC a positive 4 STAR (out of 5) buy rating. ERIC appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '10 10 covered call (RQC DB) for a net debit in the $9.13 area. That is also the break even stock price for this trade. This covered call has a 162 day duration, provides 12.04% downside protection and a 9.53% assigned return rate for a 21.47% 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 ERIC Jan '11 5 Call (VYD AA) and selling the Apr '10 10 call (RQC DB) for a $4.45 debit. The trade has a 162 day life and would provide 8.96% downside protection and a 12.36% assigned return rate for a 28.00% annualized return rate (for comparison purposes only). Ericsson has a current annual dividend yield of 1.51%. [FBB-Seven Summits Research]

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