$KSS bears rack up gains

Kohl’s (KSS) fell sharply after reporting earnings today, racking up big gains on downside option positions.

Market Rebellion’s Unusual Option Activity Service flagged bearish option activity in the same contract, expiring this Friday, on two separate occasions over the last month:

–On Oct. 30, 5,000 Weekly $55 puts expiring on Nov. 22 were purchased for $4.20 to 4.40 above open interest of 11 contracts with shares at $52.71.
–On Nov. 4, 4,000 Weekly $55 puts expiring on Nov. 22 were bought for $3.70 to $4.10 below open interest of 6,728 contracts but apparently adding to volume in the same strike from the earlier session, with shares at $53.85.

Those puts have traded for as much as $7.49 so far today, nearly double their average purchase price. The stock declined 11.75% in the same time period, a huge move but nowhere near that of its options on a relative basis.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

KSS is down 18.45% to $47.61 today. The department-store operator missed earnings estimates and lowered guidance before the market opened this morning.