Filed under: Bad news, Industry, Target Corp. (TGT), Penney (J.C.) (JCP), Options, Technical Analysis
Target Corp. (NYSE: TGT) stock is trading lower after competitor JC Penney (NYSE: JCP) cut its first-quarter profit estimate to 50 cents per share from 75 cents per share, citing waning consumer demand and lower-than-expected sales. The announcement has sent the retail sector down, piquing worries that inflation and a slowing economy will adversely affect the retail sector. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TGT.
After hitting a one-year high of $70.75 in July, the stock hit a one-year low of $47.01 in January. This morning, TGT opened at $50.05. So far today the stock has hit a low of $49.50 and a high of $50.52. As of 12:30, TGT is trading at $50.23, down 75 cents (-1.5%). The chart for TGT looks bullish but deteriorating, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in 3 weeks as long as TGT is below $55 at April expiration. Target would have to rise by more than 9% before we would start to lose money. Learn more about this type of trade here.
TGT hasn’t been above $55 for more than a few days at a time since November and has shown resistance around $53 recently. This trade could be risky if the US economy turns around quickly, but even if that happens, this position could be protected by resistance TGT might find right around $55, where the stock has topped out over the past month.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in TGT or JCP.
Entries (RSS)