Update – TJX: Spreading June Calls

by CC May 25, 2017 3:35 pm • Trade Updates

10 days ago we previewed a slew of retail earnings announcmenets and offered some trading strategies into the events. One of the stocks we detailed was TJ Maxx (TJX). Here’s what we said originally:

those long the stock or those looking to be long should look to do so with defined risk, leaving room for more upside but protecting against a sharp correction

In lieu of 100 shares of TJX (77) Buy the June 75/85 call spread for 3.40
  • Buy 1 June 75 call for 3.60
  • Sell 1 June 85 call at .20

Following the release, TJX was down a few dollars. We updated with this to say:

TJX is down a bit today, with the stock 73.80 the stock replacement/alternative is worth about $1, not great, but less of a loss than the stock saw. As far as trade management, if it was replacing stock it makes sense to maybe sell the call spread and roll down to the June 72.5 call for 2.50 outright. If the stock bounces that will act well, yet if the stock continues lower it will define risk.

TJX has bounced a bit since, and now with the stock 75.35 the June 72.5 calls are worth 3.40. So it was a good roll down in that situation. As far as trade management, there’s about .30 of extrinsic value on those 72.5 calls, so spreading them can reduce the premium risk to nothing, making the position more like stock. The June 77.5 calls are .40, selling those creates a 72.5/77.5 call spread, giving the stock a little room to get back to just above the original entry and making back the original loss on the move lower, while continuing defined risk without the extrinsic premium risk if the stock goes sideways.