Lorillard Inc (LO) 11/20/09 PriceWatch Alert Up To 7.18% Return

Posted: Friday, November 20, 2009 8:37 AM EDT
By: Market Intelligence Center Staff

Lorillard Inc (NYSE: LO) closed yesterday at $79.07. So far the stock has hit a 52-week low of $52.50 and 52-week high of $81.76. Lorillard stock has been showing support around 77.89 and resistance in the 80.03 range. Technical indicators for the stock are Bullish and S&P gives LO a positive 4 STAR (out of 5) buy rating. LO appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Mar '10 75 covered call (LO CO) for a net debit in the $73.27 area. That is also the break even stock price for this trade. This covered call has a 120 day duration, provides 7.34% downside protection and a 2.36% assigned return rate for a 7.18% 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 LO Jan '11 65 Call (XJH AM) and selling the Mar '10 75 call (LO CO) for an $8.95 debit. The trade has a 120 day life and would provide 6.48% downside protection and an 11.73% assigned return rate for a 36.00% annualized return rate (for comparison purposes only). Lorillard has a current annual dividend yield of 5.04%. [FBB-Seven Summits Research]