Stocks quoted in this article:
Call players took aim at Michael Kors Holdings Ltd (NYSE:KORS) on Friday, as option volume on the apparel company ramped up to more than double the daily norm. During the course of the session, about 11,000 calls and 12,000 puts changed hands, with the November 80 call emerging as the day's most popular KORS strike.
Specifically, a total of 1,553 contracts traded at the November 80 call, and 867 of those translated into new open interest over the weekend. Since most of these calls crossed the tape near the ask price, and implied volatility on the option rose on the day, it's safe to assume that options players were buying to open new calls on KORS last Friday.
On the charts, KORS is up 0.2% today to trade at $71.61 -- but the shares earlier tagged a new 52-week low of $70.44. In other words, those November 80 calls are out of the money by a fairly substantial margin right now.
The stock has dropped 29% from February's record high of $101.04, but Friday's skew toward calls was simply more of the same for KORS. During the past 50 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.72 calls for every put on the equity. This ratio ranks higher than 92% of other such readings taken over the past year, which means traders have rarely picked up calls over puts at a faster pace.
That said, there could be an ulterior motive behind all the call buying on Michael Kors Holdings Ltd (NYSE:KORS). Short interest has been on the rise for months, up roughly 60% since mid-May. As a result, it's possible that bears are buying calls to hedge their shorted shares, rather than to bet on a rally for KORS. And with the company tentatively slated to report earnings during the first week of November, that could certainly be the impetus behind Friday's deep out-of-the-money back-month call trades.