Options Brief: Collective Brands (PSS)

PSS – Collective Brands, Inc. – The holding company of Payless ShoeSource, Inc. and Stride Rite Corp. realized a 9.8% pullback in the price of its shares today to secure a new 52-week low of $12.41 after revealing that second-quarter sales in stores open for at least one year declined 6.4%, while total U.S. revenue plunged 7.1%. PSS reported second-quarter results after the closing bell on Wednesday, posting earnings of $0.32 a share, and disappointing analysts expecting the firm to rake in net income of $0.45 a share. It looks like the sharp decline in shares, however, did not deter one contrarian options trader from positioning for a Collective Brands rebound by October expiration. The investor appears to have established a bullish risk reversal play, selling 2,000 puts at the October $12 strike at a premium of $0.55 each in order to purchase 2,000 calls at the higher October $14 strike for premium of $0.50 apiece. The trader pockets a net credit of $0.05 per contract on the risk reversal and keeps the full amount as long as PSS shares exceed $12.00 through expiration. Profits above and beyond the credit received today start to amass if the price of the underlying stock jumps 12.8% to exceed $14.00 by expiration day in October. Options implied volatility on PSS is down 8.9% at 52.84% following earnings.