Paychex (PAYX) 11/6/09 PriceWatch Alert With 5.11% Downside Protection

Posted: Friday, November 06, 2009 8:32 AM EDT
By: Market Intelligence Center Staff

Paychex (NasdaqNM: PAYX) closed yesterday at $30.36. So far the stock has hit a 52-week low of $20.31 and 52-week high of $31.54. Paychex stock has been showing support around 28.87 and resistance in the 31.13 range. Technical indicators for the stock are Bullish and S&P gives PAYX a weak 2 STAR (out of 5) sell rating. PAYX appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 30 covered call (PQX AF) for a net debit in the $28.81 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 5.11% downside protection and a 4.13% assigned return rate for a 21.23% 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 (OAL AD) and selling the Jan '10 30 call (PQX AF) for an $8.95 debit. The trade has a 71 day life and would provide 4.64% downside protection and an 11.73% assigned return rate for a 60.00% annualized return rate (for comparison purposes only). Paychex has a current annual dividend yield of 4.33%. [FBB-Seven Summits Research]