Options Trading News

November 23, 2012  Fri 9:26 AM CT


Kohl's has been trying to work its way higher, and one investor expects a rally over the next month.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 1,250 December 52.50 calls for about $0.87. Some 1,700 December 50 puts were sold at the same time for $0.63. Volume exceeded open interest at both strikes, indicating that new positions were initiated.

The trade resulted in a small credit of about $1,060, and is highly leveraged to upside in the Wisconsin-based retailer. A rally will inflate the value of the calls owned and diminish the value of the puts sold short, while the opposite will happen to the downside.

The unusual thing about the strategy is that the investor sold more puts than the number of calls they bought.  That let them offset the greater cost of the calls, and reflects confidence that downside is limited. (See our Education Section for more.)

KSS rose 0.50 percent to $52.23 in morning trading. The stock has been moving sideways for the last five years, but in recent months has been finding support at higher levels. That could make some chart watchers think it's preparing for a rally, despite guidance being mostly weak.

The bullish combination strategy pushed total option volume in the name to almost twice the daily average, according to Heat Seeker.

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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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