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.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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