Shares in Kate Spade (Ticker: KATE) got crushed on Tuesday, losing roughly 25% of their value to hit a new low of $28.30 after the retailer reported second-quarter earnings prior to the open. The stock is rebounding today, up approximately 7.0% on the session to trade at $31.00 as of 1:00 am ET. Options activity on the clothing and accessories company suggests one strategist is positioning for the price of the underlying to continue to recover in the near term. It looks like the trader purchased a 2,000-lot Sep 31.0/35.0 call spread at a net premium of $1.40 per contract. The strategy makes money if shares in Kate Spade rally another 4.5% over the current price of $31.00 to exceed the average breakeven point at $32.40, with maximum potential profits of $2.60 per contract available in the event that the stock jumps 13% to $35.00 by September expiration.
Chart – KATE shares rebounding from Tuesday’s drop
