Paychex (PAYX) 2/9/10 PriceWatch Alert Targets 7.80% Downside Protection

Posted: Tuesday, February 09, 2010 8:44 AM EDT
By: Market Intelligence Center Staff

Paychex (NASDAQ: PAYX) closed yesterday at $28.86. So far the stock has hit a 52-week low of $20.31 and 52-week high of $32.88. Paychex stock has been showing support around 28.51 and resistance in the 29.27 range. Technical indicators for the stock are Bearish and S&P gives PAYX a very weak 1 STAR (out of 5) strong sell rating. PAYX appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jun '10 27.50 covered call for a net debit in the $26.61 area. That is also the break even stock price for this trade. This covered call has a 130 day duration, provides 7.80% downside protection and a 3.34% assigned return rate for a 9.39% 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 PAYX Jan '11 20 Call and selling the Jun '10 27.50 call for a $6.90 debit. The trade has a 130 day life and would provide 6.79% downside protection and an 8.70% assigned return rate for a 24.00% annualized return rate (for comparison purposes only). Paychex has a current annual dividend yield of 4.28%. [ATU-Seven Summits Research]