Yesterday Dan previewed Target (TGT) Q2 results and detailed a couple of trade ideas, one that hedged existing longs and the the the other for those without a position but mildly bullish. TGT beat estimates and had some very positive growth numbers the were able to point to, both bricks and mortar and online. Today the stock is higher, trading $87. Here are those trade ideas from yesterday, when the stock was $83, starting with the hedge for existing longs:
vs 100 shares of TGT at $83 Buy Sept 89 / 80 collar for 60 cents
-Sell to open 1 Sept 89 call at $1
-Buy to open 1 Sept 80 put for $1.55
With the stock 87 this hedge is costing about 1.60 versus the gains in the stock. As far as trade management it probably makes sense to close the put portion of this trade (selling the Sept 90 puts at .30) as they’re no longer doing much as far as protection. That would leave the choice on the 89 short call and whether to close it or leave it for now. I prefer leaving it for now as it’s a fairly decent over-write with a breakeven above 90 (the call is currently trading 1.30). If the stock reverses a little it provides a small buffer into September (would make a decline from here 1.30 less worse if it expired worthless). And on the upside it could cost some more of profits but it’s probably not a huge risk to getting called away, and any increases from here in the stock would be profitable anyway, and the call could just be closed at a small loss compared to those stock gains if the strike came into play. If the put is sold now and the stock closes below 89 on Sept expiration that would mean the hedge only cost .30 net versus any gains in the stock, not bad.
Now to the call calendar:
TGT ($83) Buy Aug 24th weekly / Oct 87.50 call calendar for $1
-Sell to open 1 Aug 24th weekly 87.50 call at 75 cents
-Buy to open 1 Oct 87.50 call for $1.75
This is really well positioned and got the move almost exactly right. With the stock 87 this call calendar is worth about 2.15 versus the initial 1.00 at risk. The stock is cooperating and the closer we get to Friday with the stock near here the better as the Aug24th short call has a chance to expire worthless. I’d give it another day or even into Friday before any roll. We’ll circle back on that one on a roll for those looking to extend the bullish view beyond Friday.