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We are recommending a trade on Target (NYSE:TGT). We have successfully sold two covered calls on TGT in 2019, and we think now is the time to sell a third.
TGT is up after a strong earnings report, and a covered call is a good way to earn premium and give ourselves an additional cushion to the downside if the market experiences any disruptions.
Finally Rising Above $75
Though we’re selling a covered call on TGT, we actually are bullish on the stock. Since reporting earnings in November, the stock has been stuck below $72.50. In February, TGT was able to get above $72.50, even getting close to $75, but it quickly came back down.
But in its latest earnings report, TGT announced that fourth quarter comparable sales grew 5.3%. Comparable digital sales grew 31%, which means TGT’s online sales are growing. Online sales growth is a good sign for a brick and mortar retailer, and it could have contributed to TGT’s rally.
Even more important, TGT beat earnings per share expectations, coming in at $1.53. While the surprise wasn’t huge, it is a positive sign that a large retailer was able to beat earnings after we saw some weakness in the sector.
Still Seeing Resistance at $78
The fundamental picture looks good for TGT, but there is still overhead resistance at $78. Share prices for TGT are still in the gap range created in November, but there is a small chance TGT breaks out before our covered call expires. Still, we think that in the near term, there is enough resistance to keep the stock’s price down.
Daily Chart of Target (TGT) — Chart Source: TradingView
We think selling a covered call is the best move because it will increase our total option revenue. There is always a chance that we will have the stock called away, but we would rather collect premium now and see how TGT behaves in the coming month.
To find out which TGT calls we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.
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