Payless ShoeSource (PSS) 11/18/09 PriceWatch Alert Targets 20.11% Downside Protection

Posted: Wednesday, November 18, 2009 8:32 AM EDT

Payless ShoeSource (NYSE: PSS) closed yesterday at $20.39. So far the stock has hit a 52-week low of $3.85 and 52-week high of $21.85. Payless ShoeSource stock has been showing support around 19.40 and resistance in the 21.22 range. Technical indicators for the stock are Bullish and S&P gives PSS a weak 2 STAR (out of 5) sell rating. PSS appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Mar '10 17.50 covered call (PSS CW) for a net debit in the $16.29 area. That is also the break even stock price for this trade. This covered call has a 122 day duration, provides 20.11% downside protection and a 7.43% assigned return rate for a 22.22% 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 PSS Jan '11 7.50 Call (ZWB AU) and selling the Mar '10 17.50 call (PSS CW) for a $9.30 debit. The trade has a 122 day life and would provide 17.61% downside protection and a 7.53% assigned return rate for a 23.00% annualized return rate (for comparison purposes only). Payless ShoeSource does not pay dividends at this time. [WBA-Seven Summits Research]

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