Unusual Options Activity: Target (TGT)

Target (TGT)

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  • Trader bets on big move in the next two weeks.

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  • February 28th call options with a $121 strike on Target (TGT) saw a 194-fold explosion in volume, going from a mere 122 open contracts to a volume of over 23,736 contracts.

    The bet expires in just 15 days. It’s a bet that shares can rise about $3 from their price around $118, or 2.5 percent.

    The trader buying the options paid $0.98, so shares will really need to close north of $122 at expiration to profit.

    The company next reports earnings on March 3rd, after this trade expires, so a bump from earnings are unlikely to help there. Shares dropped after the last earnings report, but traders bet on a rebound, already in progress.

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  • Action to take: Fundamentally, there’s a lot to like about Target shares here. They’re trading around 19 times earnings, a bit under the overall market. And they yield about 2.3 percent. Finally, they’re off from their 52-week high of $130 by a fair amount, even with shares up 65 percent in the past year.

    We see shares likely to rally from here, and investors who buy under $120 will likely see a re-test of the old high near $130 in the coming weeks and months.

    While the high-volume options trade looks exciting, it will simply expire too soon to provide huge profit potential. While far pricier, the July $125 calls have the potential to give investors better returns relative to the risk, as they have far more time to play out.