M&A Buzz Boosts Michael Kors Holdings Ltd (KORS) Options Demand

Michael Kors Holdings Ltd (KORS) is rallying amid takeover rumors

Oct 18, 2016 at 3:17 PM
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Michael Kors Holdings Ltd (NYSE:KORS) is up 1.9% at $47.41, getting a boost from unsubstantiated takeover rumors. The M&A rumblings also have the stock's call options trading at nearly quadruple the usual intraday rate, and dwarfing puts by a more than 9-to-1 margin. In fact, KORS' intraday put/call volume ratio of 0.11 ranks just 1 percentage point from an annual low.

Drilling down to individual strikes, the most active option is the October 48 call. All signs point to buy-to-open activity, suggesting traders think KORS will muscle atop $48 by Friday's close, when the front-month series expires.

Bullish betting has been popular in the stock's options pits for a while, too, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, KORS sports a 10-day call/put volume ratio of 3.37, outstripping 89% of all readings from the past year.

A look at the charts reveals why options traders may be hopeful about the stock's prospects. KORS has tacked on over 18% on a year-to-date basis. Plus, the shares are on the verge of taking back their perch atop the 50-week moving average, which acted as dependable support throughout the summer months.

Having said that, the rest of Wall Street is far from sold. Nearly 11% of KORS' available float is sold short, which would take 7.2 sessions to cover, at the stock's usual trading volumes. Plus, 14 of 18 analysts rate the shares a "hold" or a "strong sell." From a contrarian perspective, if Michael Kors Holdings Ltd (NYSE:KORS) continues to run higher, a capitulation among the doubters could add fuel to its proverbial fire.

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