Michael Kors Holdings Ltd: Buy a Trendy KORS Stock on the Cheap

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Wall Street’s fashion police are once more in love with Michael Kors Holding Ltd (KORS) in 2016. And for investors looking to try on a bullish position, a long call position in KORS stock looks well-suited for the spring season.

Michael Kors Holdings Ltd: Buy a Trendy KORS Stock on the Cheap

Let me explain.

It took a bit of time, but on the heels of two years of being relegated to the bargain-basement bin, KORS stock has emerged as a market leader with a new uptrend in place.

Prompting Wall Street to take more than just a fresh and casual look at KORS stock this year, back in early February the apparel and accessories outfit blew past profit estimates for the holiday quarter.

Additionally, fresh initiatives like improved digital operations, new emphasis on shifting consumer preferences and a connected accessories collaboration with Fossil Group Inc (FOSL) all appear to have helped with Wall Street’s quick, cyclical change of heart from bearish-to-bullish.

KORS Stock Daily Chart

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Source: Charts by TradingView

This strategist last wrote about KORS stock back in early January. The emphasis was on bullish positioning during a test of support within a well-formed symmetrical triangle.

We were admittedly wrong or early in KORS stock. In hindsight, a five- to six-month lower, low double-bottom in KORS stock ultimately marked the low in KORS and an end to Michael Kors’ bear market.

More recently, a massive earnings gap has been improved upon and confirmed KORS stock as one of the market’s favorite sons this year.

A small, successful triangle breakout above last May’s earnings fallout improved KORS stock’s market leadership and confirmed a new, fashionably bullish trend as being in place.

Of late, KORS stock has seen a bit of technical-based, backing-and-filling with Wednesday’s price action setting a three-week low.

How low will she go? It’s hard to say.

Wednesday’s low could mark the end to a pullback in Michael Kors. But with an overbought broader market, a move as low as $50 – $52 in KORS stock, without being truly disruptive to an emerging bullish trend, isn’t out of the question.

KORS Stock Long Call Strategy

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Source: Charts by TradingView

For bullish positioning, one favored idea given what’s been said is using a straight, out-of-the-money long call in conjunction with price confirmation from KORS stock.

Specifically, the May $62.50 call is attractive. Premiums are currently quite affordable so volatility risk is minimized. Additionally, May options have enough time on the calendar so time decay isn’t an immediate threat.

The largest risk in our opinion for buying the call is the broader market’s tenuous position.

Thus, we like a strategy of waiting for KORS stock to trade a point higher, to $57.79, before purchasing the May $62.50 call.

With a current price of 80 cents and starting delta of just over 20, allow us to estimate a call price of $1 to $1.10 as KORS stock reaffirms its uptrend. From there, the risk is defined by the debit paid.

Bottom line though, with earnings in May, future time decay risk and possible volatility implications in KORS stock, dressing up the long call into some other tailor-made position as potential profits emerge makes appreciable sense.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/michael-kors-holdings-ltd-buy-trendy-kors-stock-cheap/.

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