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Trading Momentum into Earnings Optimism With Options in Kohl's Corporation

Trading Momentum into Earnings Optimism With Options in Kohl's Corporation

Kohl's Corporation (NYSE:KSS) : Trading Momentum into Earnings Optimism With Options

Date Published:


The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.


There is a powerful pattern of optimism and momentum in Kohl's Corporation (NYSE:KSS) stock right before of earnings, and we can capture that pattern by looking at returns in the option market. The strategy won't work forever, but for now it is a momentum play that has not only returned 388% annualized returns, but has also shown a high win-rate of 58%.


The premise is simple -- one of the least recognized but most important phenomena surrounding this bull market is the amount of optimism, or upward momentum, that sets in the two-weeks before an earnings announcement. Now we can see it in Kohl's Corporation.

The Options Optimism Trade Before Earnings in Kohl's Corporation

Let's look at the results of buying a monthly call option in Kohl's Corporation two-weeks before earnings (using calendar days) and selling the call before the earnings announcement.

Here's the set-up in great clarity; again, note that the trade closes before earnings, so this trade does not make a bet on the earnings result.

Here are the results over the last three-years in Kohl's Corporation:

KSS: Long Call

% Wins: 58%
Wins: 7 Losses: 5
% Return:  178.5% 

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We see a 178.5% return, testing this over the last 12 earnings dates in Kohl's Corporation. That's a total of just 168 days (14 days for each earnings date, over 12 earnings dates). That's an annualized rate of 388%. That's the power of following the trend of optimism into earnings -- and never even worrying about the actual earnings result.

We can also see that this strategy hasn't been a winner all the time, rather it has won 7 times and lost 5 times, for a 58% win-rate and again, that 178.5% return in less than six-full months of trading.

Setting Expectations

While this strategy had an overall return of 178.5%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 12.56%.

Checking More Time Periods in Kohl's Corporation

Now we can look at just the last year as well:

KSS: Long Call

% Wins: 75.00%
Wins: 3 Losses: 1
% Return:  176.2% 

Tap Here to See the Back-test

We're now looking at 176.2% returns, on 3 winning trades and 1 losing trades. It's worth noting again that we are only talking about two-weeks of trading for each earnings release, so this is 176.2% in just 8-weeks of total trading which annualizes to 1,148%.
      The average percent return over the last year per trade was 48.34%.


Bull markets have quirks, or personalities if you like.

The personality of this bull market is one that shows optimism before earnings -- irrespective of the actual earnings result. That has been a tradable phenomenon in Kohl's Corporation.

Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.