It’s time to shop for further price discounts at Target Corporation (TGT). But for a more attractive shorting opportunity in TGT stock, the best bargain is a moderately bearish options spread. Let me explain.
Late last month, TGT stock was sent plummeting to its worst post-earnings reaction in more than seven years following a sales miss and disappointing revenue forecast blamed on weather and “an increasingly volatile consumer environment.”
This strategist believes the weather excuse could prove less an issue and more of a boost during the hot summer months. Bottom line, and if for no other reason, shoppers are likely to spend additional time in an air conditioned big box retailer like Target. But that doesn’t make TGT a buy near-term.
In fact, I’d err on the side of caution and argue that actual spending and the “volatile consumer environment” will fail to translate into a material change worthy of buying TGT just yet.
Yet, with the recent price drop of nearly 8% by TGT shoppers and some longer-term support, TGT looks a little difficult to simply short. But that’s not to say there aren’t other options.
TGT Daily Stock Chart
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Having said that, this strategist favors a modest bearish resolution in TGT.
Our bear case for TGT shares rests on a lower high pattern that’s developed into an inverted cup-with-handle following Target’s recent, and apparently, unwelcome earnings release.
On the other hand, it’s anticipated bulls aren’t going to completely give up the ghost in TGT either.
A longstanding trendline dating back to 2009 and 62% retracement from the 2014-2015 Fibonacci cycle should act as support in the near-term and minimize pressure on TGT.
As for a target on TGT, $66.50, which is about 2.60% below the current price of $68.35 and slightly above the earnings reaction low of $65.50, is where we’re setting our bulls-eye.
TGT Stock Long Bearish Butterfly Spread
Reviewing the TGT options board, the June $68/$66.50/$65 bear put butterfly spread for 25 cents fits in well with what’s been discussed.
Intrinsic profits on the spread are less than 1% below TGT’s current price of $68.35, while risk is limited to the small, initial debit paid. Theoretically, a max profit of $1.25, or 500%, is possible if Target hits the $66.50 bullseye at expiration.
More attractive from a pragmatic standpoint is to manage the initial risk and graciously settle for a double or 50 cents profit on a partial exit.
At that point, the butterfly trader can then look to work the balance of the position and possibly capture larger profits or even the proverbial bullseye within a wide expiration profit zone from $65.26 to $67.74 in Target stock.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. Mr. Tyler currently holds no positions in any of the securities discussed in his personal or managed family accounts but may initiate, for better or worse, a position in two or more business days following the publication of this article.
