Coach is set to sink on earnings next week, predicts one trader who sees turbulence ahead in the broader retail space. And he has a trade that will make him 300 percent if he is correct.
Shares of fashion design house Kate Spade plunged nearly 20 percent Wednesday morning after an earnings report that fell short of analysts' expectations.
"Several factors contributed to our second quarter results falling short of our expectations, the most impactful of which are the retail landscape and continuing tourist headwinds," said Kate Spade CEO Craig A. Leavitt in a release on Wednesday, though he added the company is "very confident in our long-term growth initiatives."
Andrew Keene of AlphaShark said Wednesday on CNBC's "Trading Nation" that retailer Coach, set to report next Tuesday, will see a similar slide.
The stock suffered a "very, very bearish day yesterday. It started to consolidate around the $43 level. I think Coach is headed lower," he said.
On a weekly chart of the Coach stock, Keene predicts that shares will dip to test the $38 or $38.5 level.
Keene has what he calls a "simple and easy" trade: He plans to buy the August 39.5-strike puts on Coach while selling the 38.5-strike puts, for a total cost of $0.25 per share. If the stock closes at or below $38.50 on August expiration, this trade will return $1 per share, for a profit of $0.75, or a 300 percent gain.
"I think this sets up an unbelievable risk-reward setup," added Keene.