Target Corp. (NYSE: TGT) stock is falling this morning on news that January chain-store sales could be flat or even decline from a year earlier. Michael Niemira of The International Council of Shopping Centers said on Sunday that he expects weakening demand, stoked by consumers' fears of a recession, to push sales numbers down to near-record lows since the ICSC began tracking sales in 1969. 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 last month. This morning, TGT opened at $57.17. So far today the stock has hit a low of $55.47 and a high of $57.32. As of 11:00, TGT is trading at $55.72, down $1.33 (-2.3%). The chart for TGT looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $70 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. This particular trade will make a 5.3% return in two and a half months as long as TGT is below $70 at April expiration. Target would have to rise by more than 25% before we would start to lose money.
TGT hasn't been above $70 by more than a few cents in the past year and has shown resistance around $59 recently. This trade could be risky if the economy bounces back strongly, but even if that happens, this position could be protected by many levels of resistance TGT should find between $60 and $70.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TGT.
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