How You Can Trade Kohl’s (KSS) with Options
On Monday’s edition of Mad Money on CNBC, Jim Cramer said he would be a buyer of Kohl’s (NYSE: KSS), calling it a “terrific place to shop.” Cramer noted that its “inexpensive prices” have delivered through the recession and should continue to deliver as the chain grows. Not to mention, The Hills’ veteran Lauren Conrad has a new line of apparel there… or, so my daughters tell me. The stock was trading at $56.37 at Tuesday’s close and is down 1% Wednesday to $55.9.
Stock traders who agree with Cramer can buy the shares; ones that are skeptical can opt not to buy them (or can sell them short, if they are really bearish). But options traders have a broad arsenal of strategies that can be used by investors attempting to capitalize on price action or changes in volatility. Below are just two examples of ways options investors could trade Kohl’s, whether or not they agree with Cramer. These are not buy-sell-hold recommendations – just a pair of potential strategies – one for the bulls, and one for Kohl’s bears.
*Option prices given as of Wednesday mid day
Bullish Option Strategy: Long Call
Investors who agree with Cramer’s bullish outlook could consider buying long calls; the in-the-money January 50 call is currently priced around $9 per contract. Call buyers can potentially lose 100% of the premium paid ($9 in this case) but have unlimited upside if the stock moves higher. Breakeven on this trade –at expiration – is $59. This is a modest 5% increase in the shares, and these options do not expire for nearly 10 months.
Bullish Option Strategy: Bear Call Spread
For traders who don’t agree with Cramer (or who don’t like Lauren Conrad’s fashion sense) might look into selling a bear call spread. The July 60/65 call spread can currently be sold for a credit of 80 cents or better (by selling the 60-strike call and simultaneously buying the 65-strike call). The spread seller can keep this 80 cents as profit if the shares are trading below 60 when the options expire. On the flip side, the maximum potential loss is capped at $4.20, and would occur if KSS is above 65 at the time these options expire. Breakeven for this trade is $60.80; above this level, the spread begins to lose money. KSS is currently almost 8% below this breakeven mark.
What are your thoughts on Cramer’s opinion, or Kohl’s business model? Share your wisdom in the commenting section below.
If you are new to options and still trying to get your feet wet, it’s helpful to start by trying your trades in an OptionsHouse virtual trading account .
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