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

Kohl's ( KSS) 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) and PF Chang's ( PFCB) 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) 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.

But why buy a far-out-of-the-money, long-term put on a stock that has been in recovery mode, when there's increasing buzz about a retailing turnaround? Well, the buyer might believe that implied volatility levels on these October options are cheap relative to the potential realized volatility of KSS shares. At-the-money implied levels could be viewed as cheap, too; the October 45 straddle, currently trading around $11.30, is in line with 63-day historical volatility levels (46%) but below the 126-day historical of 65%. So the options market-makers currently offering the straddle at that level anticipate that the stock will behave more like it has in the last 63 days rather than how it moved in the fall.

So, just because we're seeing some put-buying doesn't mean you should necessarily turn bearish on KSS. It's important to remember that an option trader's decisions are not always about company fundamentals or a stock's price action. Some options traders can become successful (or not!) trading off volatility levels and attempting to capitalize on those unique opportunities that come along every so often.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial to Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."

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