Try a KORS Call on for Size

by John Kmiecik | February 25, 2013 8:48 am

If you are a retail trader, one of the luxuries you have is to trade from anywhere with an Internet connection, wearing whatever you like. Many business professionals are not afforded such a luxury — they have to dress for success. This trade idea on a fashion designer stands a pretty good chance of succeeding no matter what you’re wearing.

With the stock at $59.11, buy the Michael Kors Holdings (NYSE:KORS[1]) April 60 calls for $3.00 or less.

The long call is generally used for a bullish outlook on a stock. The trade can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is unlimited because KORS can continue to rise; the maximum loss is $3.00 (or whatever was paid) if KORS finishes below $60 at April expiration. Breakeven is $63.00 at expiration based on a cost of $3.00.

Michael Kors creates and markets affordable luxury apparel — contradiction though that may seem to be. The company must be doing something right, because its third-quarter revenue jumped 70% year-over-year. Earnings skyrocketed 220% and same-store sales rose more than 40% year-over-year. It seems where Coach (NYSE:COH[2]) has failed, KORS has picked up the slack and risen.

Click to Enlarge

Taking a look at the chart, the stock traded lower last week after a nice run higher culminating with a gap after earnings were announced. After a considerable run higher, it’s no surprise that the stock has pulled back. But it’s important to note where the stock has traded down to — it’s currently at support, a great area for the stock to reverse. The stock has a previous pivot level (prior gap), which will often reverse the direction of the stock once it is reached.

Use caution if the stock fails to move higher and drops below that level, which is just below $59.

  1. KORS:
  2. COH:

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