History Says This Retail Stock is Set to Soar

Options traders have been optimistic toward the luxury retailer

Managing Editor
Sep 27, 2018 at 2:36 PM
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Shares of Michael Kors Holdings Ltd (NYSE:KORS) are up 2.6% at $69.81 in afternoon trading, as the stock recovers from its recent pullback following the company's roughly $2 billion purchase of sector peer Versace. Below we will take a look at how KORS has been faring on the charts, and see why now may be an ideal time to bet on the retailer's next leg higher.

Prior to its Aug. 8 post-earnings bull gap, Michael Kors stock had been moving sideways for most of 2018, stuck between a floor at $57 and a ceiling near $69. After its breakout, however, the shares went on to hit a three-year peak of $75.96 on Aug. 22, before pulling back to the 160-day and 200-day trendlines.

Daily KORS with 160 and 200 MA

More specifically, Michael Kors stock is now within one standard deviation of its 160-day and 200-day moving averages. Over the past three years, there have been three prior instances of KORS pulling back to the 160-day and four of it coming this close to its 200-day after closing north of the respective trendlines at least 60% of the time during the previous two months, and in eight of the last 10 trading days.

Those prior pullbacks to the 160-day and 200-day trendlines have resulted in an average one-month returns of 3.05% and 4.5%, respectively, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Plus, 67% of the returns were positive after the 160-day meet-up, and 75% for the the 200-day.

Options traders have been extremely bullish toward KORS in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows the retailer with a 10-day call/put volume ratio of 6.32, ranking in the 85th annual percentile. This indicates that calls have been purchased over puts at a faster-than-usual clip.

Plus, now may be an attractive time for near-term traders to buy premium on KORS options. The security sports a Schaeffer's Volatility Index (SVI) of 26%, which ranks in just the 8th annual percentile. In other words, short-term options are pricing in unusually low volatility expectations at the moment.

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