Unusual Options Activity: Target (TGT)

Big box retailer Target (TGT) has seen shares sink to new 52-week lows over the past week. While shares look oversold in the short-term, one trader is betting on a further move lower.

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  • That’s based on the September $110 puts. With 106 days until expiration, 10,144 contracts traded compared to a prior open interest of 428, for a 24-fold rise in volume on the trade. The buyer of the puts paid $2.50 to make the bearish bet.

    Shares recently traded for about $134, so Target would need to drop about $24, or another 18 percent, for the options to move in-the-money. It would also mean shares moving to a low last seen in early 2020.

    The retailer has seen a slowdown in spending, with revenues rising just under 1 percent last year. And overall earnings dropped by 6 percent. So any further decline in shares could happen if the company reports worse-than-expected revenues in the coming quarters.

    Action to take: With shares still falling, interested investors may want to hold off on buying for now. Or buy a small stake and use a further drop in price to add to that position. The recent selloff has taken Target’s dividend to 3.1 percent.

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  • For traders, with shares now in a downtrend, the September puts could see high returns from here. Traders should use an up day in Target shares to buy the puts more cheaply.

     

    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.