Options: Kohl's Attracts Put-Buyers

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Kohl's(KSS Quote) was up about 2% today, outperforming the market and continuing its recent winning ways.

Earnings are not due to be reported until after the market close on May 14, but investors are scooping up Kohl's along with shares of other retailers after firms such as Coach(COH Quote) and PF Chang's(PFCB Quote) reported better-than-expected earnings this week. The possibility that retailers are getting to the bottom of their earnings cycle has the bulls out and about.

But we saw at least one option buyer swoop in at the Oct. 30 put strike today in KSS. More than 13,000 contracts changed hands -- open interest was just 1,305 at the open. Currently, this strike is out-of-the-money by close to 33%.

Kohl's has positioned itself as the discount department store that isn't. Despite its low price tags and ubiquitous sales, the retailer attracts brands such as Nike(NKE Quote) and Levi's, and designers including Dana Buchman and Vera Wang. And from its March 9 closing low of $32.50, the stock has rallied nearly 40%.

What's notable about today's put activity is that the majority of the contracts have been initiated by buyers, at an average price of $1.15 per contract. In order for these put buyers to profit at expiration, the stock needs to be lower than $28.85 -- the strike of the put minus the premium paid. The last time KSS traded in this area was in November. But expiration on Oct. 16, 2009, is a long way away, and the put buyers may be looking to capture a profit long before then.