Payless ShoeSource (PSS) 11/20/09 PriceWatch Alert Support Down To $19.72

Posted: Friday, November 20, 2009 8:19 AM EDT

Payless ShoeSource (NYSE: PSS) closed yesterday at $20.21. 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 19.72 and resistance in the 20.92 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 Jun '10 17.50 covered call (PSS FW) for a net debit in the $15.51 area. That is also the break even stock price for this trade. This covered call has a 211 day duration, provides 23.26% downside protection and a 12.83% assigned return rate for a 22.19% 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 5 Call (ZWB AA) and selling the Jun '10 17.50 call (PSS FW) for an $11.40 debit. The trade has a 211 day life and would provide 18.85% downside protection and a 9.65% assigned return rate for a 17.00% annualized return rate (for comparison purposes only). Payless ShoeSource does not pay dividends at this time. [FBB-Seven Summits Research]

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