Kohl's Options Volume Spikes Ahead Of Earnings

Kohl's stock has relied on support in the $58 area

Patrick Martin
May 21, 2018 at 12:33 PM
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Retail earnings will continue to trickle in this week, with department store chain Kohl's Corporation (NYSE:KSS) scheduled to report its first-quarter results before the market opens tomorrow, May 22. KSS stock has averaged a next-day move of 6.9% over the past eight quarters, yet this time around, the options market is pricing in a much larger next-day move of 11.6%, regardless of direction, based on implied volatility data.

Heading into the event, options volume has picked up today, with roughly 5,000 calls and 5,300 puts crossing the tape -- double the average intraday rate. KSS' weekly 5/25 69.50-strike call is garnering notable attention, with new positions being opened. If these calls are being bought, traders are wagering on post-earnings upside from KSS shares through the end of this week, when the contracts expire. Meanwhile, the January 2020 50-strike put is most popular, and it looks like one trader may have sold the puts to open to bet on a long-term floor for Kohl's shares.

Although KSS stock's recent history of earnings reactions has been negative -- the shares have closed lower the day after their report in three of the last four quarters -- the equity today is set for its highest close in weeks. The security is up almost 20% in 2018, and was last seen trading 1.8% higher at $64.61. The retail stock has relied on support around the $58 level all year, which is home to a 38.2% Fibonacci retracement of KSS' rally from its 2017 fourth-quarter low to its late-February two-year high at $69.48.

KSS Fib Levels Chart

Should Kohl's deliver an upbeat earnings report, a short squeeze could provide tailwinds for the equity. Short interest increased by nearly 10% in the most recent reporting period to 29.77 million shares, the highest since mid-December. This represents nearly 18% of KSS' total available float, and almost nine days of pent-up buying power, at the stock's average daily trading volume.


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