| November 7, 2014

November 7, 2014

Trade Alert:

Buy KATE January 16th 2015 $32.00 Calls at $1.50 or better

Company Background:

Kate Spade & Company (KATE) designs and markets a range of apparel and accessories.  They sell these products in department stores and their own Kate Spade & Company specialty retail stores.

Short-Term Catalyst:

KATE is one of the hottest names in fashion.  The company stands to be one of the biggest winners of the holiday shopping season.

The high end fashion industry has been wracked by oversupply, price wars, and weak consumer spending growth this year.

Stocks that cater to this industry have had a rough year as well.  We’ve seen formerly well established names like Coach (COH) and former high flyers like Michael Kors(KORS) tumble lower throughout the year.

The deep discounting and handbag price wars among competing brands have cut into profit margins industry wide.

Now, after a tumultuous year, it appears that KATE is emerging as the winner.

In the most recent quarter, KATE reported a 30% increase in quarterly sales.  And the all important North American sales jumped 36.4% in the third quarter.  And margins improved from 61.4% to 62.8% as demand for bags with higher prices and fatter margins soared.

The company also raised their forecast for same store sales growth.  They increased their forecast from a range of 15% to 17% up to 19% to 21%.

In short, KATE is the hottest brand going into the holiday shopping season.

I’m expecting the new bullish growth forecast to spark a major rally in shares of KATE over the next few months.  Let’s grab call options on KATE to profit from their profitable holiday shopping season.

Trade Details:

Underlying Stock Symbol: KATE
Current Bid-Ask Price: $1.25 – $1.40
Option “Buy Up To” Price: $1.50
Break-Even On Stock At Expiration: $33.50
Maximum Risk Per Contract: $150


Exit Strategy:

KATE is trading at $30.27 per share. Resistance levels will be at $33.00 and again at $36.00. Remember, we want this stock to move higher. Support levels will be at $27.50 and $25.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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