Options Hot as Kohl's Steps Into Earnings Confessional

Kohl's will report earnings before the open tomorrow

by Patrick Martin

Published on Aug 19, 2019 at 11:41 AM

While this summer's earnings season is mostly finished, there are still some stragglers who have yet to report. One is retailer Kohl's Corporation (NYSE:KSS), which is set to report second-quarter earnings before-the-open tomorrow, Aug. 20. Ahead of the event, options traders are coming out of the woodwork in greater-than-usual numbers.

More specifically, KSS has seen more than 6,000 call options change hands today -- three times the average intraday amount and volume pacing for the 95th percentile of its annual range. Most active is the September 45.50 put, as well as the weekly 8/23 52.50-strike call. New positions are being opened at each, so for the latter, it appears options traders are betting on a big spike from KSS by this Friday, when the options expire.

However, recent earnings history favors the bears. Kohl's shares moved lower the session after five of the last eight earnings reports, including a 12.3% drop back in May. Over the past two years, the shares have swung an average of 6.5% the day after earnings, regardless of direction. This time around, the options market is pricing in a much larger-than-usual 14.9% swing for Tuesday's trading. 

On the charts, KSS is trading at $47.23, just above its Thursday 18-month bottom of $43.33. Following the earnings-induced bear gap in May, Kohl's stock saw its subsequent rally stymied by its 80-day moving average. Year-to-date, the shares are down 29% and are fresh off their third-straight weekly loss.

Daily Stock Chart KSS

In the options pits, calls dominate the picture. Data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security with a 10-day call/put volume ratio of 2.56, ranking in the 90th percentile of its annual range. In other words, calls have been bought to open over puts at a faster-than-usual clip. However, given 12.2% of KSS' total available float is sold short, its possible some of this call buying is shorts hedging against any additional upside risk. 

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