With earnings season winding down, all but a few stragglers have completed their quarterly rituals. This week, a number of retailers finally unleash their earnings details, including Target (TGT).
Target’s ongoing ascension has been placed on pause this year. At $78.38, it’s up an underwhelming 3% year-to-date. Though, to be fair, it’s not as if the broader market has had a banner year. The gain in the S&P 500 stands at a scant 1.4%, so I suppose TGT shareholders should be celebrating their outperformance.
With its recent downturn, TGT stock has descended back below its 20- and 50-day moving averages. The pivotal 200-day moving average is coming up fast, and TGT needs to remain above it for the technical outlook to remain positive. A critical support level looms near $77.50, so Target is perched at a critical juncture heading into this week’s earnings event.
An earnings miss and down-gap could deal some serious damage to its chart.
Target stock isn’t exactly a wild child during earnings. Its last two announcements have been a snoozefest, resulting in little price movement in its stock. The options board is currently pricing in an earnings gap of $2.58, or roughly a 3.3% move higher or lower.
Implied volatility has experienced the typical pre-earnings ramp. At 71%, the IV rank is perched at a similar level to prior earnings announcements. Short option strategies should have enough juice to be interesting.
TGT Stock Earnings Plays
Here are a pair of earnings plays to consider into Wednesday morning’s announcement.
Bulls could sell the Sep $75/$70 put spread for a 60-cent credit. Consider it a bet that the TGT stock price remains above $75 over the next month. Should TGT gap higher following earnings, you should be able to capture the bulk of the max reward quickly.
The risk is limited to the distance between strikes minus the net credit, or $4.40, and will be lost if TGT tumbles below $70 by expiration.
Bears could sell the Sep $82.50/$87.50 call spread for a 66-cent credit. The short call spread is poised to profit should TGT stock price remain below $82.50 over the next month. Obviously, a gap down in TGT will help speed up your profit accumulation. The max reward is simply the initial 66-cent credit.
The max risk is limited to the distance between strikes minus the net credit, or $4.34, and will be forfeited if TGT stock should rise above $87.50.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
