It wasn’t long ago that KSS was given up for dead. At the end of last year’s slump in late March, the stock hit a low below $ 11. Retail was in trouble. Today, the stock has increased fivefold after a blowout earnings report last week. The result has more than doubled the analyst estimate. And although revenues fell, the final balance also beat estimates. The results for the coming year also exceeded the analysts’ expectations.
Despite KSS’s recent performance, the analyst community remains skeptical. While there were several target price increases, the new prices weren’t far from the current price. In addition, there were no upgrades. Only a third of covering analysts rate KSS as a buy, which is difficult to justify as the stock is up 36% this year alone (SPY less than 3%). With analysts ultimately warming to the stock, there is plenty of room for future upgrades that could give the stock a boost.
The KSS chart shows the 20-day moving average as the primary support trend line. In fact, there have only been three daily closings out of 20 days in the past four months. Note that the short strike of our credit spread (red line below) is below the 20-day value, so the stock would have to penetrate this support for the spread to get into the money.
If you’re okay with KSS’s uptrend continuing, consider the following trade, which has the stock staying above $ 52.50 to expire in six weeks.
Buy to Open KSS 16Apr21 50 Put (KSS210416P50))
Sale to open KSS 16Apr21 52.5 Put (KSS210416P52.5) for $ 0.85 credit (sale of a vertical)
This balance is $ 0.02 below the midpoint of the options spread when KSS was trading at $ 55.69. If the stock doesn’t recover quickly from here, you should be able to get close to that amount.
Your commission on this trade is only $ 1.30 per spread. Each spread would then be $ 83.70. This reduces your purchasing power by $ 250 and brings your investment to $ 166.30 ($ 250 – $ 83.70). If KSS closes above $ 52.50 on April 16, both options will expire worthless and your return on the spread will be 50% ($ 83.70 / $ 166.30) or 436% on a yearly basis.
As with all investments, you should only trade options with money that you can really afford to lose.
Have fun trading,
Tags: Bearish Options Strategies, Bullish Options Strategies, Income Options Strategy, Kohls, KSS, Monthly Options, Portfolio, Profit, Profits, Puts, Risk, Vertical Put Spread, Volatility, Weekly Options
This entry was posted on Monday March 8th, 2021 at 9:00 am and is filed under Profit Reporting Strategy, Last Minute Strategy, Monthly Options, Stock Option Trading Idea of the Week, Weekly Options.