Minor Move – Yields Major Profit: 1462%! (KSS)

Kohl’s (NYSE:KSS) is an old-line department store that once offered a wide range of yummy comestibles, but now peddles mostly clothes.

The problem facing Kohl’s is rather a nice one – it’s fallen too far, too fast and is due for a bounce.

Oh..?

Yet, so have many other stocks.

So what makes KSS different?

For one, her options table.

A close look reveals a number of beautiful strategies emerging in a single month — one of which especially caught our attention.

And could yield a filthy rich 1462%.

And all we require is a $1.51 move in the underlying to step out like Bill Gates in all his Satan-worshipping glory!

Let’s start our discussion with fundamentals…

• KSS trades with a P/E of just 5.64, while analysts look forward to an expansion a year from now to 8.11.  In other words, there’s a healthy prognosis, and a recognition that the current multiple is exaggeratedly small.
• Dividend Yield is 6.92%, with very little worry that the payout is under threat.
• The stock trades below the company’s break-up value – P/B is just 0.81.
• The company’s debt load is slightly overdone, with a Debt/Equity ratio of 1.08, but…
• EPS grew last year by 698.80% (from a Batflu-retarded year prior), and
• Analysts foresee a further earnings bump of 17.90% in the coming twelve months.
• To boot, three directors collectively bought over a million dollars of stock in August, and we take that as a very good sign.

Good, too, is the company’s recent end-of-year promotional package, which is both comprehensive and enticing enough – in our view – to drive more shoppers into stores and to increase their respective basket sizes.

Now the chart –

Technically, we have…

1. RSI and MACD diverging HIGHER against price for the last five months (green arrows), a sign that selling momentum is waning and the bulls are gaining the upper hand.
2. Additionally, RSI has now surfaced above its all-important midway waterline (green box), and MACD looks ready to do the same.  Once that happens we should see a healthy bout of technical buying – even if it’s only short-term rally chasers.
3. On the price side, we see a four month descending trendline (in red) breaking last week and the stock starting to rise (in purple), and…
4. The short-term moving average beginning to scoop price (in black).  All of which likely means there’s more gains in store, short-term.
5. How high can she go?  Not certain, but there’s a gap to $33.60 that needs filling (in blue), so we’ll bet on that level, for starters.

And with that, we trade!

Like this –

A Jew and His Gold recommends you consider selling the KSS November 18^th 30/27.50 PUT spread* for a credit of $1.19 (3.05/1.86) and buying the KSS November 18^th 27.50/30 CALL spread** for $1.35 (2.94/1.59).  Total debit on the trade is $0.16.

[*Sell the 30 PUT and buy the 27.50 PUT.  **Buy the 27.50 CALL and sell the 30 CALL.]

Rationale: 1462% is our maximum gain ($2.34 on just $0.16 spent).

Max loss is $2.66 (difference between the PUT strikes plus the initial debit).

Breakeven arrives at $28.91, just $0.42 (1.4%) above the stock’s current price.

The full 1462% is pocketed with a rise of $1.51.

And given the current volatility, that could transpire by week’s end.

We’ve got a full month to accomplish that move – and though, under normal circumstances that might be considered cutting it close, in the current market, we don’t believe it is.

All the same, we’re labeling the trade SPECULATIVE, given expiry arrives in exactly 30 days.

Hashem, Master of Legions is His name—may the glory ever be His!

Many happy returns!

Matt McAbby

Follow @HughLOHaynew