Target reported earnings on Tuesday that beat on most estimates including same store sales. The stock is higher this week as a lot of other retail stocks are taking it on the chin. Before earnings we checked in on a bullish position we’d started in May and had subsequently rolled lower as the stock saw weakness. Here is the trade idea resulting from that roll and some of what we said on Monday:
Buy to open the Aug/Oct 57.5 call calendar for .60 (1.05 net)
- Sell to open the Aug 57.5 call at .40
- Buy to open the Oct 57.5 call for 1.00
The ideal situation for the current trade is a move higher to 57.50 at which point the August calls could be closed, rolled farther out, setting up a bullish position out to October at a very low cost.
With the stock now 56.25 this position worked well. It is worth about 1.50 mark to market, which is a gain of .90 on the current position and a gain of .45 on the original. So this essentially turned a losing position into a winning one.
As far as trade management, for those who have felt the current gains are fine, especially with what’s been going on with retail stocks in general the position can simply be closed for a profit. For those in TGT for a more long term view, the Aug 57.5 puts can be closed and rolled to a sale of the Oct 62.5s at .30, creating a very cheap 5 dollar wide call spread out to October. For those looking to take off almost all the risk while leaving with an opportunity to make money on a move to 60 the Oct 60 calls can be sold at .75.
Also in the retail space we detailed a bearish XRT put calendar that has gone from a small winner to a small loser amidst these earnings as the index has moved lower than out short strike. I’ll follow up with trade management on that trade in the next few days.