Yesterday there was some divergent price action in two semi-highend retailers, COH and KORS, with COH shares attracting some notable put volume in front of tomorrow’s annual analyst meeting. As I detailed on Fast Money last night, a trader rolled up a block June (this Friday expiration) puts, selling 7500 of the 39s to close at .60 and paying 1.00 for 7500 of the June 40 puts to open. This likely protection against a long stock position:
Nice timing on the roll, as the stock is down 3% today, giving back all of yesterday’s gains. The five year chart of COH, went from being a thing of beauty up until early 2012 to an absolute train-wreck. Earlier this year when the stock broke $50, it completed a 3 year topping pattern in the shares:
The trader who rolled the puts yesterday is likely long the stock but believes that protection is warranted into the potentially volatile event. We don’t have an opinion on the fundamentals, but if LULU and WFM’s price action of late have proven anything, when a former cult stock cracks, it is hard to play for a quick reversal of fortunes. Just as they might have overshot on the upside, they are also likely to do so on the downside.
On the flipside, KORS 350% gains since its December 2011 IPO has come at the expense of other high end fashion retailers like COH.
KORS also has a meeting with investors tomorrow, speaking at Deutsche Bank’s retail conference. While positive sentiment has clearly been tilted towards KORS, it is important that it is not a zero sum game. Like I had suggested prior to LULU’s results last week, a stock down as much as it was, like COH, is a tough press on the short side even if it ends up being correct. KORS on the other hand is innocent until proven guilty. For those long KORS you may want to consider put protection as its options are not pricing much movement near term. The one year chart of 30 day at the money IV (blue line) vs 30 day realized (white) shows options prices as cheap as they have been in a very long time relative to how much the stock is actually moving:
Put another way, if you were to buy the June 90 straddle (put and the call) that expires Friday on the close, you would pay about $2.00 with the stock at $90.24 which implies about only a 2% move. If you bought that you would need the stock below 88 or above 92 to make money by Friday’s close.