Analysis and earnings trade ideas for Michael Kors

• Posted by Greg Harmon
• on August 5th, 2015

This analysis and the trade ideas were given to subscribers at 11am today.

Michael Kors, was a designer from at least age 5 when he designed his mother’s dress for her second wedding. His rise culminated with IPO of his brand in 2011. Tonight the company will report earnings after the market close. The crowd sourced estimate in Estimize shows an expected 78 cents per share and revenues of $952 million, above the Wall Street crowd.

The price and market action have told a different story over the last 18 months though. After a rise to a top in February 2014 it went through an 18 month pullback. this was highlighted recently by a large drop on massive volume in May following their last report. It has only leaked lower from there though at the bottom of a falling channel. Into earnings it has retraced 78.6% of the move higher after the IPO.

The momentum indicators are showing real weakness but oversold conditions. The RSI is in the bearish zone, while the MACD is flat and moving toward a positive cross. Time for a bounce? A look at the Bollinger Bands® shows them falling and with a lot of room for price to the downside.

There is support from prior price history at 37 followed by 27 and 25, the IPO price. There is resistance above at 43 and 46 followed by 49. The average move following the last 6 earnings reports has been 9.83% or about $4 at current price levels. The stock also has a moderate short interest at 5.0%.

Looking at the August 7 Expiry options chain, shows the at-the-money Straddle pricing a $3.70 move into Expiry Friday, a bit smaller than the historical. The implied volatility is elevated at 135% compared to the August options at 63% and September options at 46%. Open interest is larger on the Call side this week and focused at the 42 Strike, with sizable open interest in Puts at 39.

Michael Kors, $KORS

Trade Idea 1: Buy the August 7 Expiry 40/42 Call Spread for $0.95.

Trade Idea 2: Buy the August 7 Expiry 40/42 Call Spread and sell the August 37 Put for $0.40.

Trade Idea 3: Buy the August 7 Expiry 40/42 1×2 Call Spread (free) and sell the August 7 Expiry 37 Put for a $0.55 credit.

Trade Idea 4: Trade Idea 3: Buy the August 40/42.5/45 Call Butterfly for $0.90.

#1 looks for a rise to at least 42. #2 looks for the same move higher but uses leverage to improve return, with risk of owning the stock under 37 at Expiry. #3 looks for a rise and stall at the large open interest at 42 with leverage, and a risk of owning the stock under 37. If it runs past 42 you will need to hedge with stock. #4 looks for the 42.5 Strike open interest in the August monthly Expiry to draw and hold it. I like #4 best or #3 if you have margin to use.

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