Markets

Trade sees more downside in Kohl's

Kohl's has been dropping, and one investor is positioning for another leg down.

optionMONSTER's Depth Charge tracking system detected the purchase of 2,000 February 46 puts for $1.50 and the sale of 4,000 February 44 puts for $0.70. Volume was more than twice open interest in both strikes.

The trade cost $0.10 and will earn a maximum profit of 1,900 percent if KSS closes at $44 on expiration. Gains will erode below that level and turn to losses under $42.

The trade is known as a ratio spread because the investor sold twice as many downside puts as those that were bought. The strategy is designed to leverage a limited move and is often used by shareholders who wouldn't mind buying more stock if it goes below a certain level.

In the case of today's trade, that level is $44. That's also where KSS bounced in September, which could lead some chart watchers to believe that it will enjoy significant support if it falls that low.

The department-store operator is trading at $45.92 today, off 0.2 percent today and down 10 percent in the last month. It's been falling as investors price in a weak December shopping season because of unusually warm weather, which depressed sales of winter apparel.

Overall option volume in KSS is slightly above average so far today, with puts outnumbering calls by 18 to 1.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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