Kohl's (NYSE: KSS - option chain) shares are rising today after the company posted a 5.5% drop in same-store sales in September, beating analysts' estimates of a 6.1% drop. The markets were braced for bad news, so even though sales fell a significant amount and the KSS lowered its guidance, the stock is still getting a lift.
If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on KSS.
KSS opened this morning at $36.95. So far today the stock has hit a low of $36.74 and a high of $40.08. As of 10:15, KSS is trading at $39.37, up $1.21 (3.2%). The chart for KSS looks neutral and S&P gives KSS a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $35 range.
A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 12.1% return in just one and a half weeks as long as KSS is above $35 at October expiration. Kohl's would have to fall by more than 9% before we would start to lose money. Learn more about this type of trade here.
KSS hasn't been below $36.80 at all in the past year and has shown support around $37 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in KSS.
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