Here is a quick preview of what I will be discussing tonight on Options Action on CNBC at 5:30pm:
The illustrious technician Carter Worth of Opco will be highlighting some of the haves and have nots within the retail space of late. Results have been fairly bifurcated, with disappointments among mid to lower end retail components like KSS & WMT and better than expected numbers from some higher end discretionary names like KORS, RL & M. If the government shutdown did have an effect on consumers, it is fairly evident that it wasn’t on the high end. Next week will see a slew of earnings from a whole host of retailers like HD, TGT, BBy, URBN and TJX, which should hopefully shed some light on the effects of the travails in Washington and give us a sense for the outlook of what will be short holiday season with Thanksgiving so late this year.
Carter is taking a look at TJX though as the stock has run almost 10% since pre-announcing slightly better than expected fiscal Q4 results at their analyst meeting on Oct 22. The company is set to report on Nov 19th prior to the open and the options market is implying about a 2.8% one day move vs the 4 qtr avg move of about 3.1%.
The stock caught my eye because it is on a run-away breakout making new all time highs daily. Also the valuation is getting a bit rich, on a forward basis trading at 19.5x fiscal 2014 earnings that are expected to grow at 14% and on a trailing basis that is at 10 year highs at 23x (below):
The stock has been an amazing performer, up almost 50% on year, and by all accounts it has recently gone off the charts so to speak. The one year chart below shows the recent parabolic move that has brought the stock up an uncomfortable 23% above its 200 day moving average and well above the trend channel that has been in place since last December.
MY VIEW: I don’t have a strong view on the fundamentals, but the stock appears to be priced for perfection, especially when you consider the company already pre-announced the qtr and FY 2014 eps. That doesn’t mean that the stock is a short, but with implied vol relatively low, and valuation and price action getting frothy, for those looking for near term shorts, this one could line up pretty well.
I am not doing this trade yet, but will take a closer look prior to earnings. For those inclined to do so, this would be the way to play. Dec Put Flies could be lower premium way to play also, will outline prior to the print.
TRADE: TJX ($63.40) Buy Dec 62.5 put for 1.20
Break-even on Dec Exp:
Profits below: 61.30
Losses: up to 1.20 btwn 61.30 and 62.50, lose full 1.30 above 62.50 or 2% of the underlying.