My apologies for the late update to anyone in the KATE (Kate Spade & Company) Active Short Trade. KATE was posted as a short trade idea on July 29th with an entry to be taken at the open on July 30th, which occurred at a price of 38.91. At the time I had noted that KATE was scheduled to report earnings on Aug 14th although either the source of that information (Nasdaq.com) was wrong or KATE moved up their earnings release and conference call to before the open today. However, that is not what I wanted to apologize about because either one took the trade on July 30th, knowing that it would be an “earnings play” (meaning that you’d almost certainly have to hold it thru earnings in order to hit one or both profit targets due to the close proximity of entry to the scheduled earnings date), or passed, not wanting to risk a positive reaction to KATE’s earnings & guidance trumping the bearish technicals on the stock.
What I regret is not updating this trade earlier today when I noticed the large price swings following the open. I had received an email from someone mentioning KATE this morning mentioning the fact that it had exceeded my suggested stop of 41.10. With the stock coincidentally opening exactly at 41.10 today & then moving higher immediately thereafter I figured that the trade exceeded the suggested stop and that I would post that it was stopped out and remove it from the Active Trades category with the next batch of stopped out trades as soon as I got around to updating the stopped out or otherwise removed trades.
In hindsight I should have referenced my notes at the time and posted an update to the KATE trade earlier today. In this original/previous post on KATE, I had stated that 41.10 could be used as a relatively tight stop but that suggested stops, namely the suggested stop for my previously stated preferred target of T2 at 27.55, would follow. Using the typically R/R of 3:1, an idea stop area based on the entry price of 38.91 and the preferred price target of 27.55 would be 42.70. KATE peaked at a high of 42.87 shortly after the open as soon as the initial order imbalances were absorbed, still within the margin of error for a 3:1 R/R, especially considering the post-opening ordering imbalances that took the stock there.
In the past I have often mentioned my preferred strategy when caught on the wrong side of a gap and KATE was one of those times where that strategy worked today. By waiting for the initial surge of buying & short-covering to subside, this trade went from a potential loss to hit & even well exceed the first profit target today. Again, had I bothered to check my notes, I would have posted this earlier today vs. after the close as I’m catching up on things.
One final note for those still short KATE; I have revised T2 from 27.55 to 27.65 (10 cents higher) as the stock is now very oversold in the near-term and as such, the odds of a reversal before the actually support level (around 27.43) are increased substantially, especially if the stock continues to fall this week. click here to view the live, annotated chart of KATE