Trade of the Day — Collective Thinking
Yesterday’s action in Collective Brands (PSS) was interesting. As noted this morning, shares bucked yesterday’s bearish trend and moved 23 cents higher. The advance was accompanied by increasing interest in the January 15 – 17.5 bullish risk-reversal, which traded more than 4000X. PSS added another 59 cents to $19.35.
Analysts expect the company to post a loss for the quarter ending January 2011, but to earn $1.47 for the full year and $1.65 for the fiscal year 2012. This company is also a cash cow, generating $3.3 billion in revenues, or $52.8 per share! Yesterday’s news that the company has teamed up with Li & Fung to sell shoes in Greater China and Southeast Asia seems to open up a huge market for the Payless Shoes brand. The relative strength in the stock and bullish options order flow is probably related to this news item.
For the Trade of the Day, we’ll begin with a Dec 17.5 buy write in PSS at $15.80 or better — buying shares at $16.35 and selling Dec 17.5 calls at 55 cents. Ideally, the stock will move towards $17.5 through mid-December and we can reinvest profits into a more aggressive trade or perhaps write January calls against shares. (PSS Dec 17.5 buy-write at $15.80 or better).
Also note that we were stopped out of the Sprint stock position today and the rest of this week’s Trades of the Day will be closing and rolling of November positions.
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About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.
