Go Long on This Discount Retailer

by John Kmiecik | June 4, 2012 9:03 am

Go Long on This Discount Retailer

Is there doom and gloom ahead? The answer to that question cannot be answered with any certainty at this juncture. With signs that the economy has stalled, there might be a lack of opportunities for a bullish trader. But here is a bullish trade idea from a company that is in a sector that might surprise you.

TJX Companies Inc. (TJX – $40.90): Long Calls

The trade: Buy the July 40 calls for $2.40 or less.

The strategy: Buying a long call is a relatively straightforward bullish strategy. The trade can profit when the stock rises and the call premium increases as the TJX (NYSE:TJX[1]) option moves more and more in-the-money. Maximum profit is unlimited because TJX can continue to rise, the maximum loss is $2.40 if TJX finishes below $40, and breakeven is at $42.40 at July expiration.

The rationale: TJX’s European division just recently posted its highest first-quarter profit. Sales increased by 13%, which probably is a good indication that shoppers are looking for bargains. The retail sector as a whole might be feeling the heat of a slowing economy, but TJX’s many retail stores could be some of the places where people are going for discounts.

Technically, the stock has been making a slow climb higher for the past six months — except for May, when the stock bounced around a bit. Friday’s bearish day might be a good opportunity to catch this stock at a lower price before it tries to head higher once again!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.

Endnotes:
  1. TJX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TJX

Source URL: http://investorplace.com/2012/06/go-long-on-this-discount-retailer/
Short URL: http://invstplc.com/1frneqf