Market Insights

Kohl’s has been falling for years, but yesterday traders looked for a rebound.

More than 214,000 call options changed hands in the retailer. It was the highest total since at least 2008, according to TradeStation data.

More than half the total occurred in short-term contracts expiring this Friday, March 28:

• Some 84,000 28-March 9.50 calls traded, starting at $0.03. Premiums rose along with the retailer’s stock price, passing $0.20 by the afternoon.
• Volume in the 28-March 10 calls passed 57,000. Premiums rose from $0.02 to $0.12.
• Almost 15,000 of the 28-March 9 calls traded for $0.04 to $0.50.
• Turnover in the 9.50s and 10s was more than 40 times previous open interest. It was slightly above open interest in the 9 calls. That indicates new money was put to work.

Calls fix the level where traders can purchase a security. They can appreciate rapidly when prices rise, but will expire worthless if shares close under the strike on expiration.

KSS jumped 14 percent to $9.40 yesterday — despite a lack of clearly positive news. The stock recently touched its lowest level since 1996 and has significant short interest. Given Monday’s rally in the broader market, traders may have thought it was due for a bounce.

While the company dropped after its last earnings report, management outlined a turnaround plan involving store closures and proprietary brands. The efforts are intended to increase gross margins, which could potentially boost profits because KSS trades for less than one-tenth of its annual revenue. Other retailers like Target (TGT) and Capri (CPRI) trade for about 0.5 times revenue.

Overall options volume in KSS was about 6 times greater than average. Calls accounted for a bullish 95 percent of the total.

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