Schaeffer's Trading Floor Blog

Option Idea of the Week: Michael Kors Holdings Ltd (KORS)

Is KORS a fashionable choice for option bulls?

by 10/11/2013 11:21 AM
Stocks quoted in this article:

Upscale apparel name Michael Kors Holdings Ltd (NYSE:KORS) has had a strong year, gaining roughly 43% to solidly outperform the S&P 500 Index (SPX) by close to 25 percentage points. Since hitting a record high of $78.62 in late September, the shares have been consolidating a portion of these gains, but recently tested support at their 60-day moving average. This trendline contained pullbacks in the shares earlier this year, so a bounce from this area could mean additional upside from the stock's current perch at $72.86.

Daily Chart of KORS since April 2013 With 60-Day Moving Average

The equity's solid price action hasn't yet translated into optimism among KORS options players. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the 50-day put/call volume ratio stands at 0.79. While this indicates that more calls have been bought to open than puts during the last 10 weeks, the ratio itself is 4 percentage points from an annual high. In other words, long puts have rarely been in greater relative demand during the last year.

Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.05 (up from 0.97 just one week ago) indicates that put open interest narrowly outweighs call open interest among options expiring in three months or less. The SOIR reading is higher than 82% of the year's past results, which again points to a predilection for puts. As option bears begin to capitulate, KORS could benefit from contrarian tailwinds.

Skepticism extends outside of the options pits, as short interest has risen by 32% since mid-June to 5.89 million shares. This amounts to 4% of the stock's available float, which paves the way for a modest short-covering rally, should the bears begin to hit the exits.

KORS is tentatively scheduled to issue its fiscal second-quarter earnings the week of Nov. 4. Analysts are projecting a per-share profit of 67 cents, which represents a nearly 37% improvement over the company's year-ago results. In each of the last seven quarters, Michael Kors has bested Wall Street's consensus earnings estimate, by an average of 12 cents per share. What's more, the stock has gained an average of 9.7% during the session immediately following the news.

Option speculators wanting to target Michael Kors Holdings Ltd (NYSE:KORS) for additional upside might consider trading the in-the-money January 2014 65-strike call, which was last asked at $10.60.

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