EOT Trade Alert – October 31, 2008

| October 31, 2008

October 31, 2008

Trade Alert:

    Buy KSS December 2008 $30 PUTS at $2.25 or better (KSSXF)

Company Background:

Kohl’s (KSS) operates almost 1,000 departmental stores.  They offer apparel, footwear, and accessories as well as home products, such as sheets and pillows.  The company also provides online shopping of furniture and electronics.

Short-Term Catalyst:

Back in August we noted that consumer confidence numbers were falling.  We said that the current economic environment wasn’t good for the holiday shopping season. Back then we bought puts on JC Penny and were richly rewarded.

By late October those puts were up about 490%.

The same economic trends are continuing.  Consumer confidence continues to fall to new lows.  GDP has turned south.  Unemployment is rising.  The economy continues to weaken.  I believe investors are underestimating just how bad the retail industry is going to suffer this holiday season.

The biggest sales season of the year is upon us, and nobody wants to spend money. That means more sales, earlier write downs, and potential for big losses in the retail industry.

Kohl’s stock has been climbing over the last 6 sessions despite disappointing economic news.  We should take advantage of this short-term rally and capture big gains as the stock falls towards new lows.

On a technical basis, the company’s stock is trading well below its 50-day moving average.  The stock’s just crossed above a 20 day moving average.  I’d expect it to fall back to that level (and below) shortly.

Trade Details:

Option Ticker Symbol: KSSXF
Underlying Stock Symbol: KSS
Current Bid-Ask Price: $2.00 – $2.10
Option “Buy Up To” Price: $2.25
Break-Even On Stock At Expiration: $27.75
Maximum Risk Per Contract: $225

Exit Strategy:

KSS is trading at $35.85 a share.  The strongest resistance levels will be at $38 and $40.50.  Remember we want this stock to move lower.  As the stock moves lower it will reach support just under $30 and again at $25.



Category: TPS Trade Alert

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