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Michael Kors Holdings Ltd (NYSE:KORS) is having a rough morning, down 2.5% to trade at $86.60 in the wake of some skeptical weekend coverage in The Wall Street Journal. As such, puts are flying off the shelves at an intraday rate five times the norm, and outnumbering calls by a more than seven-fold margin. In addition, the accessories maker's short-term options are being targeted, as evidenced by the 9.4% increase (to 38.9%) in the stock's 30-day at-the-money implied volatility (IV).
The most active KORS strike by a healthy margin is the July 90 put. All of the 5,000-plus contracts that have traded here did so at the ask price, and IV has surged 14.9 percentage points, together indicating buy-to-open activity. Diving deeper, the volume-weighted average price (VWAP) paid for the puts is $2.75, making at-expiration breakeven $87.25 (strike less VWAP). In other words, the contracts are currently not only in the money, but also in profitable territory. The put buyers will continue to profit on a move all the way down to zero, whereas they risk losing only the initial premium paid, should the shares rebound and close above $90 at this Friday's close (when the front-month series of options expires).
Taking a step back, today's penchant for Michael Kors Holdings Ltd (NYSE:KORS) puts over calls is business as usual for short-term speculators. After all, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.54 ranks at the top of its annual range, meaning put open interest has never been so high (relative to call open interest), among options expiring in the next three months.