Sell the Kohl’s Put Option

You can’t win ’em all.

After a streak of numerous triple-digit gains, we’re exiting Kohl’s (NYSE: KSS) today with a loss. The stock simply moved against our seasonal expectation, and that requires we exit.

Action to take: Sell to close the KSS April 17, 2015, $57.50 put option (KSS150417P00057500) at market. At last glance, the option was trading at $0.70.

Kohl’s defied our seasonal expectations and it bested Wall Street’s financial expectations. Despite the fairly tepid holiday selling season, the retailer this morning announced that its fourth-quarter sales were actually better than expected. That sent the shares bounding 4% higher, which sent our put option — a play on a declining stock price — lower.

We were not in our Kohl’s position as a bet on what sales would do. We were expecting a seasonal sell-off in the shares that is historically typical following the fall/winter selling season. For us, Kohl’s Street-beating sales created exuberance in the stock that undermined our seasonal play.

Clearly, no one likes losses, but, like I said, you cannot win them all. As famed Magellan Fund manager Peter Lynch used to say, you’re doing OK as an investor if you’re batting 60%, and until this unexpected boost to Kohl’s sales, we had a solid streak of winners: the 129% gain on half of our position in Cedar Fair (NYSE: FUN), and the 139% and 101% half gains in Carnival.

I have no worries about our good times continuing as we move into our spring and summer trades.

Until next time, good trading…

Jeff Opdyke
Editor, Precision Profits