Traders are positioned for possible Kohl’s sale to Amazon

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kohl's Traders are positioned for possible Kohl's sale to Amazon Traders are positioned for possible Kohl’s sale to Amazon ap17005479427785AP
Images / Richard Drew

  • Kohl’s has been cozying up to Amazon in recent months,
    but the company’s incoming CEO says it’s not an attempt to get
    acquired.
  • Traders are positioning anyway for a stock increase
    that would likely result from a deal.

Kohl’s is trying a
novel approach to fending off the Amazon-led retail apocalypse:
play nice with the enemy.

Last month, the department store operator said that it would
open up Amazon
shops
in 10 of its locations, with a focus on technology
products. A few weeks later, Kohl’s announced that it would start
accepting returns
for items purchased on Amazon.com.

The decisions were the epitome of “if you can’t beat ’em, join
’em'” logic, and investors rewarded the company with a 7.7% stock
rally from the initial announcement through the end of September.

It also started chatter that Kohl’s was cozying up to Amazon with
hopes of being acquired.

Incoming Kohl’s CEO Michelle Gass addressed this speculation in a
Bloomberg TV
interview
on Tuesday. When asked whether Kohl’s is looking to
get bought, she simply said, “I don’t think so, no.”

But traders are taking no chances. If Amazon does purchase
Kohl’s, it would likely be for a large premium over its current
stock price, creating a big payday for investors who stuck with
the company through an increasingly difficult retail environment.
For evidence of this, look no further than Amazon’s $13.7 billion
acquisition of Whole Foods
earlier this year, which saw the
company pay a whopping 27% premium.

In order to position for this, traders are paring hedges on the
company, leaving them more directionally exposed to profit from a
stock price increase. The implied volatility spread between
Kohl’s shares and an exchange-traded fund
tracking the retail industry
has fallen to the lowest in more
than two years. (Implied volatility reflects investor
expectations of price swings, and lower levels imply
bullishness.)


KSS implied vol spread Traders are positioned for possible Kohl's sale to Amazon Traders are positioned for possible Kohl’s sale to Amazon kss 20implied 20vol 20spread
Judging
by the implied volatility spread, traders are the most bullish on
Kohl’s in more than two years, relative to the SPDR S&P
Retail ETF.

Business Insider / Joe
Ciolli, data from Bloomberg


What’s more, the three most traded Kohl’s options contracts on
Tuesday were calls — which reflect wagers on a stock price
increase.

Gains would be welcome news for Kohl’s shareholders who saw the
stock plunge 19% in a single day at the beginning of the year,
after the company made big cuts to its annual profit forecast.
Shares are up 3.1% since then, but remain down more than 12% on a
year-to-date basis.

Some analysts have been won over since Kohl’s announced its
collaboration with Amazon. On October 9, Telsey Advisory analyst
Dana Telsey upgraded the stock to outperform and increased her
price target to $50, citing continued momentum for the company.

Kohl’s “continues to play offense in a defensive world,” she
wrote.


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