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.
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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.
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