Kohl’s Is Dressed For Success!

While the negotiations could face a bumpy road, Japan and the U.S. are headed for a new round of trade talks today in Washington. Economic Revitalization Minister Toshimitsu Motegi will try to avert steep tariffs on car exports and stress the significance of multilateral free trade, with an eye on persuading the U.S. to return to the TPP. The world’s third-largest economy will also face demands from U.S. Trade Representative Robert Lighthizer, including a trade deficit reduction and the further opening of Japan’s automobile and agriculture markets.

*Source:  Seeking Alpha

Let’s consider Kohl’s Corporation. (Ticker: KSS):

The VantagePoint platform recently indicated upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average on August 6th.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN a day before.  This indicator measures strength and weakness for a 48-hour period, in this case strength.  The move to the GREEN position further makes the case for a potential bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength.  I want to play the VP bullish indication.

Strategy Discussion

If you are strictly a stock trader, simply buying KSS in the $74.00 area is a prudent move.  You are anticipating a move to the upside.  It is always a good idea to enter a sell-stop order to mitigate potential losses.  Placing that sell-stop in the $72.75 will achieve that goal.

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  You will first want to calculate your target strike.  In order to do this, you will need three pieces of data:  current price, expiration date and the implied volatility associated with that expiration date.  For KSS, that yields a target strike of ~$82.50.  You may want to consider the KSS August 24th weekly expiration 79.5/81 call spread, buying it for $0.40.  The most you can lose is the premium paid and the most you can gain is the width of the spread less any premium paid.  Max risk = $0.40 and max reward = $1.10.  This means that you are getting odds of 2.75:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

Strategy Update

Recall back to earlier in the week when we highlighted potential bullish momentum in VMware (VMW) on 8/7/2018.  Let’s take a look at the chart today:

We can see that the VP platform certainly did its job as the bullish momentum in VMW continued throughout the week.  We entered the 8/17 regular expiration 155/157.5 call spread for $0.67.  We ran into a couple of risk management decisions today.  One, we are starting to fight time decay as these options expire in a little more than a week.  Second, we see that the bullish momentum is starting to wane as the blue predictive moving average has started to flatten out.  Because of both of these factors, we exited our spread for a small winner exiting at $0.72 to realize a return of 7.46%.