KORS Analysis

Update 5/27/2015: KORS took the greatest fall in its history after earnings were published. With no reasonable hope of improvement between now and expiration at the end of the week, I took the loss and moved on.

The decline was well below the two standard deviation range, which encompassed 95% of expected trades. I think we can fairly all the event a Black Swan.

Shares declined by 20.9% over one day, or a -7,640% annual rate. The options position produced a 113.3% loss on debit, for a -41,367% annual rate.

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The women's sportswear fashion design house and retail chain Michael Kors Holdings Ltd. (KORS), headquartered in London, publishes earnings on Wednesday prior to the opening bell.

I shall use the MAY5 Weeklys series of options, which trades for the last time three days hence, on May 29.

[KORS in Wikipedia]

KORS

Ranges

Click on chart to enlarge.

KORS at 10:40 a.m. New York time, 30 days hourly bars

The stock price peaked in February 2014 at $101.04 and has been on a steady decline ever since. Given that steady fall, the selection of a resistance level is somewhat arbitrary.

Implied volatility stands at 42.6%, which is 3.1 times the VIX, a measure of volatility of the S&P 500 index. KORS’s volatility stands in the 98th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	62.82	65.23	63.31
Lower	57.98	55.57	59.88
Gain/loss	4.0%	8.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

Iron condor short the $63.50 calls and long the $65 calls,
short the $57 puts and long the $55.50 puts
sold for a credit and expiring May 30
Probability of expiring out-of-the-money

MAY5	Strike	OTM
Upper	63.5	71.0%
Lower	57	70.5%

A rare position where the reward is greater than the risk; the risk/reward ratio stands at 0.9:1. The premium is $0.75 ($0.36 for the calls and $0.39 for the puts).

Decision for My Account

I've opened a position in KORS as described above.

-- Tim Bovee, Portland, Oregon, May 26, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.