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Put LEAPS for Portfolio Protection: LEAPS are longer-term options with expirations of between nine months and two and a half years. Put LEAPS can be attractive as portfolio hedges because they lose time premium at a much slower rate than do shorter-term puts. In our screening, we looked for puts, which expire in January 2013, that are deemed to be underpriced (according to our model), that are based on stocks expected to do worse than the market over the next six to twelve months, and that offer leverage of at least 2 to 1 on a downward move in the stock (i.e., if the stock falls 10%, the LEAP gains 20% or more). Our screening came up with put LEAPS on eighteen different stocks, among them Carnival Corp. (CCL) and VeriSign (VRSN).

Company

Ticker

Industry

Stock Price

Premium (Ask)

Fair Value

Current Leverage

Carnival Corp

CCL

Recreation

     38.25

            2.25

       2.63

3.2

FedEx Corp

FDX

Air Transport

     95.00

          10.20

     12.07

3.4

Human Genome Sc.

HGSI

Biotechnology

     27.29

            2.50

       4.02

2.6

State Street Corp

STT

Bank

     45.47

            2.06

       3.34

3.8

VeriSign Inc

VRSN

Internet

     36.48

            3.60

       4.39

3.7

Carnival Corporation is among the largest vacation companies in the world with 11 brands: Carnival Cruise Lines, Princess Cruises, Holland America Line, Costa Cruises, P&O Cruises, Cunard Line, The Yachts of Seabourn, Ocean Village, AIDA, Ibero Cruises, and P&O Cruises Australia. These brands operate 96 ships with approximately 187,000 lower berths. The company also operates Holland America Princess Alaska Tours. www.carnivalcorp.com.

FedEx Corp. (FDX) provides overnight, door-to-door delivery of packages and documents through its own air-ground transportation system. FDX operates about 135,000 ground vehicles and 664 aircraft. www.fedex.com.

Human Genome Sciences, Inc. (HGSI) researches and develops pharmaceutical products based on understanding the medical utility of genes. Using automated gene sequencing technology, the company now possesses one of the world's largest proprietary databases of human and microbial genes. GlaxoSmithKline has several compounds derived from Human Genome's database in clinical trials. www.hgsi.com.

State Street Corp. (STT) provides institutional investors with investment servicing (including custody services & daily pricing for mutual funds), investment management, and investment research and trading services. As of 12/31/10, had $21.53 trillion in assets under custody & administration and $2.01 trillion assets under management and operations in 25 nations. www.statestreet.com.

VeriSign, Inc. is the leading provider of electronic certificates and Internet-based trust services needed by web sites, enterprises, and individuals to conduct trusted and secure electronic commerce and communications. VRSN is also a leading registrar of domain names. The company operates in two segments: Internet Infrastructure and Identity Services and Other Services. www.verisign.com.

 

At the time of the writing of this report, the author had no positions in any of the stocks mentioned.