$KSS bears ring the register

Kohl’s fell sharply after reporting earnings today, yielding big profits on downside option positions.

On March 5, Investitute’s proprietary programs flagged the purchase of 9,500 July $75 puts for $8 to $8.40 as part of a bearish roll with shares at $71.34. This was clearly fresh buying, as open interest in the strike was a mere 38 contracts before that trade occurred.

Those puts sold for as much as $20.12 today, more than 2.5 times their initial purchase price. The stock dropped 22.3% in the same time period, a large 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 fell 12.36% to $55.14 today. The department-store operator’s same-store sales missed estimates before the market opened this morning.