Kohl’s Showing Strength In This Weak Market

Negative sentiment is being seen in the stock markets again as the Dow looked set for steep triple-digit losses and S&P 500 futures slumped 1.5% to a new low of 2715. The tech sector is under additional pressure after chipmaker AMS (OTCPK: AMSSY) plunged 27% as its outlook triggered alarm bells on a big day for corporate earnings. Broader forces may also be at play, amid Saudi Arabia’s diplomatic isolation, worries about Italy’s finances and a stalemate over Brexit.

*Source:  Seeking Alpha

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

Strategy Discussion

If you are strictly a stock trader, simply buying KSS in the $72.00 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 buy-stop in the $71.00 area 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 a passive, premium credit approach may be the best path to success.

Because of the reasons given above, the sale of a credit put spread may be one way to approach this situation.  You want to collect as much premium as possible while at the same time staying within the bounds of your risk tolerance levels.  You may want to consider the KSS November 2nd weekly expiration 70/71 put spread, selling it for $0.35.  The most you can gain is the premium collected and the most you can lose is the width of the wider spread less any premium collected.  Max gain = $0.35 and max loss = $0.65.

This means that you are laying odds of 1.86:1.

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