Shares of discount clothing retailer Kohl’s Corporation (KSS) jumped higher earlier this year on a report that the company had received a buyout offer. While the company has downplayed any buyout offer, one trader is betting that one could occur in the first half of the year.
That’s based on the July $60 calls. With 136 days until expiration, 6,124 contracts traded compared to a prior open interest of 202, for a 30-fold jump in volume.
The buyer of the calls paid $4.90 to make the trade. The stock recently went for just under $56, so shares would need to rise about 7 percent for the option to move in-the-money.
While the stock has jumped higher recently, shares are slightly down over the past year. The company has grown revenues by 15 percent, but earnings have lagged and the company has a low 5 percent profit margin.
Action to take: Shares look interesting here as a possible buyout play. The stock does trade for under 10 times current and forward earnings, and other valuations indicate that shares are inexpensive enough to be attractive to a prospective buyer. Shareholders can even get a 1.8 percent dividend yield here.
For traders, the options could soar on a buyout offer, which makes them a worthwhile speculation. On a buyout offer, shares might be bid up to $70, which would instantly move shares higher and potentially move the option higher by triple-digits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.