Payless ShoeSource (PSS) 11/6/09 PriceWatch Alert Up To 17.78% Downside Protection

Posted: Friday, November 06, 2009 8:34 AM EDT
By: Market Intelligence Center Staff

Payless ShoeSource (NYSE: PSS) closed yesterday at $19.69. 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 18.34 and resistance in the 20.62 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 $16.19 area. That is also the break even stock price for this trade. This covered call has a 134 day duration, provides 17.78% downside protection and an 8.09% assigned return rate for a 22.04% 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 Mar '10 17.50 call (PSS CW) for an $11.65 debit. The trade has a 134 day life and would provide 15.44% downside protection and a 7.30% assigned return rate for a 20.00% annualized return rate (for comparison purposes only). Payless ShoeSource does not pay dividends at this time. [FBB-Seven Summits Research]