Tuesday’s trading session brought good fortune to retail stocks across the board. The retail sales report released Tuesday morning showed that sales in December came in at 0.5%, which crushed the market’s expectation of 0.2%.
Click to Enlarge By the end of the day, the SPDR S&P Retail ETF (NYSE:XRT) had climbed 2% on its highest trading volume in eight months. What’s more, now that the XRT has broken above the resistance zone around $64.30, it can now challenge its all-time highs at $65.47.
Amid the broad retail rally, traders flocked to Express (NYSE:EXPR), driving its shares higher by nearly 24%. The outsized move came after the company said it was raising its earnings forecasts following better-than-expected holiday sales.
Click to Enlarge Since the former Limited Brands‘ (NYSE:LTD) division went public in May 2010, EXPR has taken investors on a volatile ride. After doubling in price from $13 to $26, shares were cut in half last year dropping as low as $10.47. And yet, with the favorable up-gap in late November along with this week’s surge, it appears a resurrection of the beleaguered stock is in full force.
Traders looking for additional upside in EXPR in the coming months could buy the April 17.50-20 call spread. To initiate the position, buy the April 17.50 call while selling the April 20 call for a net debit of 95 cents or better. The max loss is limited to the initial 95 cents and will be incurred if EXPR sits below $17.50 at April expiration. The max reward is limited to the distance between strikes minus the initial debit, or $1.55, and will be captured if EXPR climbs to $20 by April expiration.
With EXPR having already rallied more than 20%, you could consider waiting until some type of pullback develops. This would allow you to buy the aforementioned call spread at a more favorable price.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.