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Trader Commits to Michael Kors Holdings Ltd (KORS) for Long Term

A block of 5,000-plus LEAPS marks an unusually bullish day in KORS' options pits

by 7/12/2013 1:07 PM
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The shares of Michael Kors Holdings Ltd (NYSE:KORS) have tacked on a cool 64.8% through the past 52 weeks to trade at $64.30. From a more near-term and comparative vantage point, the stock has outpaced the broader S&P 500 Index (SPX) by 10 percentage points in the last three months. Not surprisingly, in today's options pits, traders are betting on additional upside for the fashion-forward designer.

Most of the activity is revolving around calls, with nearly 8,200 contracts traded so far -- or more than three times the expected intraday volume. The most-targeted strike is the January 2015 65-strike call, which accounts for roughly three-quarters of the total contracts exchanged today. Of those LEAPS, the vast majority changed hands during a single block trade of 5,374 contracts, going off near the ask price for $13.00 each. Since open interest at the strike consists of fewer than 2,300 positions, it's safe to assume the speculator bought the LEAPS to open.

In order for the long-term optimist to profit from his wager, KORS needs to touch $78 (strike price plus premium paid) by January 2015 options expiration. That represents an advance of over 21% from the stock's current perch. Nevertheless, with so much time between now and then, delta for the call is 0.60, or 60%, meaning that the chances the LEAPS land in the money by expiration are 3-in-5. Still, no matter what happens, the most the investor has at stake is the premium paid.

Compared to what's been happening in Michael Kors' options pits, today's trader is walking to the beat of his own drummer. The stock's 20-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.40, up from a reading of 0.46 this time last month. In other words, in the past four weeks, traders have bought to open 1.4 puts for every call.

In the same vein, the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.64 ranks in the 82nd percentile of its annual range. Long story short, traders have been picking up long puts over calls at a more rapid rate than usual.


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