TGT Analysis

Target Corp. (TGT)

Update 4/22/2017: TGT gapped down sharply after earnings were published and then continued to decline at a less dramatic pace, moving deeper into unprofitable territory.

I was less nimble than I ought to have been for a position with some options deep in the money, and the short puts were assigned on March 20. I exited the shares the next day, and also sold the long puts, leaving a deep out of the money short call spread, which expired April 22, winding up the entire position.

Over the 54-day life of the position shares had a net decline of 17.9%, or a -121% annual rate. The options position produced a 4.2% loss on debit for a -28.4% annual rate


TGT publishes earnings on Tuesday before the opening bell.

I shall use the APR series of options, which trades for the last time 53 days hence, on April 21.

Implied volatility stands at 27%, which is 2.3 times the VIX, a measure of the volatility of the S&P 500 index.

TGT’s IV stands in the 69th percentile of its annual range and the 79th percentile of its most recent broad movement.

The price used for analysis was $66.76.

Premium: $4.44 Expire OTM iron fly
TGT   Odds Delta
Long 75.00 92.3% 9
Break-even 69.44
Short 65.00 43.4% 61
Short 65.00 58.4% 38
Break-even 60.56
Long 57.50 90.4% 8

The premium is 51% of the width of the position’s wings.

The risk/reward ratio is 1.2:1.

Decision for My Account

I have entered a position on TGT as described above. The stock at the time of entry was priced at $68.72.

By Tim Bovee, Portland, Oregon, Feb. 27, 2017

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