Thursday, June 30, 2011

Urban Outfitters URBN Could Fall from Support Level

Urban Outfitters Inc (NASDAQ: URBN) closed Friday's trading session at $28.43. In previous year, the stock has hit a 52-week low of $28.10 and 52-week high of $39.26. Urban Outfitters (URBN) stock has been showing support around $27.80 and resistance in the $29.60 range. Technical indicators for the stock are Bearish and S&P gives Urban Outfitters (URBN) a positive 4 STARS (out of 5) buy rating. For a hedged play on Urban Outfitters (URBN), look at the Sep '11 $27.00 covered call for a net debit in the $25.63 area. That is also the break-even stock price for this trade. This covered call has a duration of 82 days, provides 9.85% downside protection and an assigned return rate of 5.35% for an annualized return rate of 23.79% (for comparison purposes only). A lower-cost hedged play for Urban Outfitters (URBN) would use a longer term call option in place of the covered call stock purchase.
To use this strategy look at going long the Urban Outfitters (URBN) Jan '12 $20.00 call  and selling the Sep '11 $27.00 call for a total debit of $6.35. The trade has a lifespan of 82 days and would provide 7.32% downside protection and an assigned return rate of 10.24% for an annualized return rate of 46% (for comparison purposes only). Urban Outfitters (URBN) does not pay dividends at this time. [ATU-Seven Summits Research]

Earlier Urban Outfitters Inc said its comparable retail segment net sales are down in the low single-digits so far in the second quarter on top of a 1.1 percent fall in the most recent quarter. The company reported first-quarter revenue that beat market estimates helped by higher sales at its direct-to-consumer and wholesale segments, but reported a drop in comparable retail segment net sales, dragged down by its Anthropologie chain. Shares of the operator of Urban Outfitters, Anthropologie, Free People and Terrain stores closed at $28.49 on Wednesday on Nasdaq.

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