Unusual Options Activity: Target (TGT)

Shares of retail giant Target (TGT) dropped earlier this week despite a solid earnings report. One trader sees the likelihood that shares will recover from the drop and start moving higher.

  • Special: This Company’s Share Price has Increased 1650% Since 2016
  • That’s based on the December 31 $270 calls. With 42 days until expiration, over 2,070 contracts traded, an 18-fold rise in volume from the prior open interest of 116. The buyer of the calls paid $3.33 to make the trade.

    With shares around $255, the stock would need to rise $15, or about 6 percent for the trade to move in-the-money. With a 52-week high of $270, the trade is a bet that shares will bounce back to their old high.

    The retailer has performed strongly, with shares up 55 percent over the past year. As a retail operation, profit margins and growth aren’t huge, but do reflect the trends of American consumers, making this a simple play on strong holiday sales into the end of the year.

    Action to take: Shares could offer double-digit returns from here, as well as a 1.4 percent dividend yield.

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  • For traders, the late December calls are a solid opportunity. Shares are likely to rebound in the next few weeks. However, the chances of shares returning to their old highs in that time are remote, so traders should look for a quick move higher in shares to take profits in the coming weeks.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.