The Perfect Retail Stock for Options Bulls

Apparel retailer Kohl's Corporation (NYSE:KSS) recently broke out of a downtrend to surge to the $57 level on the heels of an upbeat second-quarter earnings report. The equity is also breaking back above its year-to-date volume point of control (VPOC), with support from the 1,000-day moving average, as well as the 23.6% Fibonacci retracement level, making now the perfect opportunity to buy calls on KSS.

 

Meanwhile, there is plenty of room for upgrades amongst the brokerage bunch, with four of the nine analysts in coverage calling the equity a tepid “hold” or worse. Plus, short interest is up 46.5% from its April lows, with most of these shorts now underwater as the 14.22 million shares sold short account for 9.2% of the stock’s available float.

The options pits lean pessimistic, indicating KSS may benefit from a sentiment shift. This is per the stock’s Schaeffer's put/call volume ratio of 1.70 (SOIR), which sits higher than all of readings from the past 12 months. This suggests short-term traders have rarely been more put-biased.

 

Our recommended call has a leverage ratio of 4.56, and will double in value on a 20.43% rise in the underlying equity.