Everyone’s favorite bullseye-themed discount store, Target Corporation (NYSE:TGT), has been in a short-term slump. From its August 9 high of $53.70, the shares have retreated nearly 7%. This decline has brought the shares below its 50-day and 200-day simple moving averages, which themselves are now in the process of crossing bearishly. + of 2% to 4%. Things could be looking up, however, as the company reported second-quarter earnings this morning. Profit rose 14% as cost cutting helped offset the disappointing same-store sales growth. Target earned 92 cents per share, matching estimates.
These factors didn’t dissuade Bank of America/Merrill Lynch, who boosted its outlook on the retailer on Tuesday. The firm lifted its rating to “buy” from “neutral” and moved its price target up to $61 from $57. The covering analyst noted that Target’s credit portfolio looks less risky and opined that a new 5% off promotion could drive more traffic into the stores. The firm is also enthusiastic about Target’s inclusion of more grocery and perishable items.
For investors curious about including option strategies in their portfolio, we’ve outlined two potential option strategies below. First is an upside short straddle targeting about 5% of potential upside through the next month. Next, for the bears, is a bear put spread, which will acheive maximum profit potential if TGT moves even fractionally lower between now and September expiration.
Keep in mind that these are not buy/sell/hold recommendations, merely examples of various strategies for educational purposes. The prices are taken as of Wednesday’s close, when TGT shares were trading at $51.95, up $1.27 on the day. (more…)
