Target Corporation (TGT) delivered a rousing earnings announcement Wednesday, lighting a fire under its stock price. Fittingly, the popular retailer scored a bullseye for shareholders. By the end of the day, Target stock climbed 4% in one of its largest up days in months.
The earnings-driven surge couldn’t have come at a better time.
Since peaking at $85.81 last June, Target missed the mark in back-to-back earnings announcements, ushering the stock into a bear market complete with technical deterioration galore.
Earlier this year, TGT shares had fallen as much as 22% from their highs. Heading into earnings week, Target stock sat squarely below all its major moving averages. The 20-, 50- and 200-day moving averages were all pointing lower just two weeks ago.
Now two of the three are ascending. Give the 200-day some time, though. Reversing that behemoth is like turning a cruise ship around. It takes awhile.
The TGT pop was accompanied by heavy volume suggesting institutions piling in following the earnings beat. On top of breaching a pair of horizontal resistance levels, Target stock successfully vaulted above the trendline that has defined its downtrend since its June peak
Take Aim With a Target Stock Trade
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With TGT’s trend now decisively higher, any and all pullbacks should be viewed as buying opportunities.
Traders looking for a high probability trade for profiting from continued strength out of Target stock should consider selling April bull put spreads. By using out-of-the-money options we can structure a trade to generate gains whether TGT stock rises, stagnates or even falls slightly from its current perch.
Sell the April $75/$70 put spread for 84 cents or better. The short vertical spread consists of selling to open the $75 put while buying to open the $70 put for a net credit of 84 cents. The max reward is limited to the initial credit and will be captured if TGT stock sits above $75 at expiration.
The max risk is limited to the distance between strikes minus the net credit, or $4.16, and will be forfeited if TGT sits below $70 at expiration.
Consider bailing if the stock breaks back below the $74 zone. This prior resistance area should provide solid support going forward.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
