OK, let's do a proper write-up on TGT for the OOP:
We're liking Target (TGT) because they are low in their channel, just under $60 and trading at a p/e of about 13.5, with no less than $4.30 in earnings expected this year and perhaps moving to $5 next year so that, in itself, makes them a bargain at $59.25.
In addition to the fact that fears of Amazon are overblown, Target is well-positioned to benefit from hurricane damage in Texas and Florida. Millions of homes suffered damage and will need to go to the store to replace a lot of goods and TGT is a go-to place – especially when people are looking to save a bit of money.
Much more importantly, TGT has their grocery business and Millions of homes were without power for a week (some longer) and that means they have to throw out everything in their refrigerator and then they have to re-stock and that's huge business for the grocery stores.
Florida has 137 TGT and "just" $69Bn total sales so 2M homes x $300 more than usual spent would be a 1% pop but in 1Q it's a 4% pop. Should be enough to get them back over $60 – especially as they have very low expectations this Q (0.86 vs $1.04 last year) and they beat last Q by 3.4% at $1.23 – so I think the estimates are way low.
Not only that but ToysRUs is going BK and again, this is a place where TGT can fill a gap as they have extensive toy sections with a lot of the same things you used to find at ToysRUs. Though the bankrupt ToysRUs can wage a price war, Target will have more pull with vendors to get the current toys kids want – just a cherry on top of the reasons we like them down here.
In our LTP, we already have a play on TGT which looks like this:
| Short Put | 2019 18-JAN 57.50 PUT [TGT @ $59.26 $0.17] | -10 | 4/7/2017 | (486) | $-10,600 | $10.60 | $-3.88 | n/a | $6.73 | $-0.03 | $3,875 | 36.6% | $-6,725 | ||
| Long Call | 2019 18-JAN 50.00 CALL [TGT @ $59.26 $0.17] | 30 | 6/27/2017 | (486) | $19,950 | $6.65 | $4.75 | $11.40 | $-0.55 | $14,250 | 71.4% | $34,200 | |||
| Short Call | 2019 18-JAN 60.00 CALL [TGT @ $59.26 $0.17] | -30 | 6/27/2017 | (486) | $-9,000 | $3.00 | $2.70 | $5.70 | $-0.21 | $-8,100 | -90.0% | $-17,100 |
We're a little ahead and we aimed low so right on track as well.
In the OOP, we have an even lower spread that's well in the money:
| Long Call | 2019 18-JAN 40.00 CALL [TGT @ $59.18 $0.09] | 7 | 6/16/2017 | (486) | $8,750 | $12.50 | $8.18 | n/a | $20.68 | – | $5,723 | 65.4% | $14,473 | ||
| Short Call | 2019 18-JAN 52.50 CALL [TGT @ $59.18 $0.09] | -7 | 6/16/2017 | (486) | $-3,500 | $5.00 | $4.65 | $9.65 | – | $-3,255 | -93.0% | $-6,755 | |||
| Short Put | 2019 18-JAN 45.00 PUT [TGT @ $59.18 $0.09] | -5 | 6/19/2017 | (486) | $-2,125 | $4.25 | $-1.95 | $2.31 | $0.00 | $973 | 45.8% | $-1,153 |
I want to get more aggressive and the 2020s are out so let's:
- Sell our 7 2019 $40 calls for $20.50 ($14,350)
- Roll the short 7 2019 $52.50 calls at $9.70 ($6,790) to 12 2020 $65 calls at $5.50 ($6,600)
- Buy 12 2020 $50 calls for $12.40 ($14,880)
- Roll the 5 short 2019 $45 puts ($1,150) at $2.30 to 8 2020 $52.50 puts at $7 ($5,600)
So we are pocketing $3,750, which is more than the $3,125 we started with and now we go from a potential (almost certain) $5,625 profit in 16 months to a potential $18,625 profit (still playing conservative) in 28 months. I think it's worth waiting 12 more months for 3x more money, don't you?
As a new trade (if you're not already in it) – it's simply selling the new 2020 $52.50 puts for $7 and buying 50% more of the 2020 $50/65 spreads for $6.90 and that's net $6.70 and returns $30 for a $13.30 profit on each spread (192%) if TGT is over $65 in Jan 2020.
