Kohl's Corp. (NYSE: KSS) this morning posted a 10.2% increase in same-store sales for November, beating analyst estimates of 6.7%. Even though the numbers sound good this month, KSS warned that some of this increase was due to a calendar shift and that December's comps could suffer on the flip side of this shift. Most retail companies are having a tough time this morning, including Target (NYSE: TGT), which announced it may not be able to meet its fourth-quarter earnings projections if business doesn't significantly improve, as sales have fallen off after a strong Thanksgiving weekend. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on KSS.After hitting a one-year high of $79.55 in April, the stock hit a one-year low of $46.99 in November. This morning, KSS opened at $51.50. So far today the stock has hit a low of $49.00 and a high of $51.50. As of 11:05, KSS is trading at $49.65, down $1.06 (-2.1%). The chart for KSS looks bearish but improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $60 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 5.3% return in 6 weeks as long as KSS is below $60 at January expiration. Kohl's would have to rise by more than 20% before we would start to lose money.
KSS hasn't been above $60 for more than a few days at a time since July and has shown resistance around $51 recently. This trade could be risky if the holiday season turns out to be better than expected for retail, but with increasing energy prices and dropping home values, consumers may not have too much discretionary income to spend on presents.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in KSS and TGT.
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