Royal Caribbean Cruises (RCL) 11/6/09 PriceWatch Alert Targets 19.69% Return

Posted: Friday, November 06, 2009 8:42 AM EDT
By: Market Intelligence Center Staff

Royal Caribbean Cruises (NYSE: RCL) closed yesterday at $21.52. So far the stock has hit a 52-week low of $5.40 and 52-week high of $25.02. Royal Caribbean Cruises stock has been showing support around 20.49 and resistance in the 22.03 range. Technical indicators for the stock are Neutral and S&P gives RCL a very positive 5 STAR (out of 5) strong buy rating. RCL appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Mar '10 17.50 covered call (RCL CW) for a net debit in the $16.32 area. That is also the break even stock price for this trade. This covered call has a 134 day duration, provides 24.16% downside protection and a 7.23% assigned return rate for a 19.69% 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 RCL Jan '11 5 Call (OAB AA) and selling the Mar '10 17.50 call (RCL CW) for an $11.35 debit. The trade has a 134 day life and would provide 24.02% downside protection and a 10.13% assigned return rate for a 28.00% annualized return rate (for comparison purposes only). Royal Caribbean Cruises does not pay dividends at this time. [FBB-Seven Summits Research]