Herbalife Ltd. (HLF) 11/6/09 PriceWatch Alert Could Hit 38.69% Return

Posted: Friday, November 06, 2009 8:08 AM EDT
By: Market Intelligence Center Staff

Herbalife Ltd. (NYSE: HLF) closed yesterday at $39.45. So far the stock has hit a 52-week low of $12.12 and 52-week high of $39.45. Herbalife stock has been showing support around 37.81 and resistance in the 40.27 range. Technical indicators for the stock are Bullish and S&P gives HLF a neutral 3 STAR (out of 5) hold rating. HLF appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at a Jan '10 40 covered call (HLF AH) for a net debit in the $37.20 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 5.70% downside protection and a 7.53% assigned return rate for a 38.69% 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 HLF Jan '11 22.50 Call (XZX AX) and selling the Jan '10 40 call (HLF AH) for a $15.25 debit. The trade has a 71 day life and would provide 4.31% downside protection and a 14.75% assigned return rate for a 76.00% annualized return rate (for comparison purposes only). Herbalife has a current annual dividend yield of 2.13%. [FBB-Seven Summits Research]