Department store chain Kohl’s Corporation (KSS) is down 15% over the past year, and trades near six-month lows. One trader expects a pop higher for shares in the coming days.
That’s based on the September 27 $20.50 calls. With 10 days until expiration, 15,148 contracts traded compared to a prior open interest of 134, for a 113-fold rise in volume on the trade. The buyer of the calls paid $0.37 to make the bullish bet.
Kohl’s shares traded for about $19.50, so the stock would need to rise by about $1.00, or 5.1%, for the option to move in-the-money. That’s a steep move in a short period of time, especially as Kohl’s won’t report earnings next until November.
However, shares are inexpensive at less than 8 times forward earnings, and with the stock trading at about 0.6 times their price to book value. Those prices and valuation could make the company attractive as a buyout target.
Action to take: Interested investors may like shares hear near their lows. The stock is likely to rise in the months ahead going into seasonal year-end strength for retailers. Plus, at current prices Kohl’s pays a 10.3% dividend.
For traders, the September 27 $20.50 calls are inexpensive, but a coin toss in terms of good returns or not. Speculative traders may get lucky and see high-double-digit returns or better. Less speculative traders may want to go out to January to catch more of the seasonal strength for retailers.
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 company mentioned in this article.