Target Corp. (NYSE: TGT) shares are rising this morning after low-end retailer TJX Companies (NYSE: TJX) posted an adjusted fourth-quarter profit of 64 cents a share, above analyst estimates of 63 cents a share. This news coming a day after chief rival Wal-Mart (NYSE: WMT) posted a better-than-expected fourth-quarter profit could mean good news for TGT and retail in general in the coming months. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade 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. TGT opened this morning at $51.91. So far today the stock has hit a low of $51.75 and a high of $53.18. As of 11:20, TGT is trading at $52.91, up $0.69 (1.3%). The chart for TGT looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $45 range. A bull-put credit spread is an options position that combines the purchase and sale of put 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 an 8.7% return in just one month as long as TGT is above $45 at March expiration. Target would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.
TGT hasn't been below $47 at all in the past year and has shown support around $52 recently. This trade could be risky if the US economy continues to worsen, but even if that happens, this position could be protected by the support the stock might find around $36, where it bottomed in January.
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, WMT, or TJX.
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Reader Comments (Page 1 of 1)
2-20-2008 @ 3:18PM
Kent said...
I always liked Target. Their stores are clean, no clutter and good merchandise at reasonable prices. I find it far more pleasureable to shop there then Wal-Mart. It may not be a wherewithal store, but for household items, it is the best.