Michael Kors Options Traders Brace for Another Negative Earnings Reaction

Options traders have been buying to open puts on Michael Kors Holdings Ltd (KORS) at a faster-than-usual clip

Feb 6, 2017 at 2:55 PM
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Shares of Michael Kors Holdings Ltd (NYSE:KORS) have a volatile history of post-earnings price action, with the stock averaging a 10.4% move in the session subsequent to the retailer reporting, over the past eight quarters. While this activity has been evenly split between four positive and four negative earnings reactions, the two most recent quarters have resulted in moves to the downside. Options traders, it seems have been bracing on another move lower after KORS reports ahead of tomorrow's opening bell -- while Canaccord Genuity echoed this cautious stance in a relatively lukewarm analyst note this morning.

While KORS' total volume has been relatively light, options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open puts over calls at a near-annual-high clip of late. Specifically, the stock's 10-day put/call volume ratio of 1.81 across this trio of exchanges ranks just 6 percentage points from a 52-week peak.

Drilling down, KORS' weekly 2/10 40-strike put has seen a notable rise in open interest over the past two weeks, with more than 1,200 contracts added. Data from the major options exchanges confirms the bulk of the activity has been of the buy-to-open kind, meaning put buyers expect the stock to retreat below the round $40 mark by this Friday's close, when the weekly series expires.

This skepticism isn't confined to the options pits, though. Despite falling nearly 46% from its mid-June record peak, short interest on KORS still accounts for a healthy 7.9% of the stock's available float. While these bearish bets account for nearly six sessions' worth of pent-up buying demand, at the equity's average pace of trading, it's notable that KORS is down 20% from its June high at $51.58. In other words, the stock's inability to capitalize on this burst of buying power could speak to its underlying weakness.

More recently, the shares have shed 4% in 2017, but appear to have found a foothold atop the $40 level, home to the stock's May 2016 lows. Today, the stock initially fell out of the gate after Canaccord Genuity said a fiscal third-quarter gross margin miss wouldn't be surprising, given that Michael Kors Holdings Ltd (NYSE:KORS) "remained highly promotional during the holiday season, which could diminish the benefits from favorable geographic and channel mix shift," and Deutsche Bank cut its price target to $50 from $56. Nevertheless, the stock was last seen trading up 0.5% at $41.24, after bouncing at $40.75 -- site of its February 2016 pre-bull gap high. Regardless of where KORS shares settle this week, though, the recent most put buyers stand to lose is the initial premium paid.

kors weekly chart

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