Reynolds American (RAI) Picked Up Over 1% Yesterday And The Stock Is Trading Bullish Technicals

Reynolds American (NYSE: RAI) closed yesterday at $48.63. So far the stock has hit a 52-week low of $31.55 and 52-week high of $50.00. Reynolds American stock has been showing support around 47.59 and resistance in the 49.33 range. Technical indicators for the stock are Bullish and S&P gives RAI a positive 4 STAR (out of 5) buy rating. RAI appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a May '10 45 covered call (RAI EI) for a net debit in the $44.03 area. That is also the break even stock price for this trade. This covered call has a 204 day duration, provides 9.46% downside protection and a 2.20% assigned return rate for a 3.94% 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 RAI Jan '11 40 Call (OWO AH) and selling the May '10 45 call (RAI EI) for a $4.50 debit. The trade has a 204 day life and would provide 8.49% downside protection and an 11.11% assigned return rate for a 20.00% annualized return rate (for comparison purposes only). Reynolds American has a current annual dividend yield of 7.08%.

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