Target (TGT) is moving higher on renewed optimism in the retail sector. However, there are two big events tomorrow that could cause shares to move sharply in either direction – the company’s earnings announcement and October retail sales data.
Our short call is deep in the money. I am recommending we roll it out to the December monthly expiration and up to a much higher strike price to avoid being called out of the position. While we will need to spend some cash to do so, we will pick up an additional $10 in potential capital appreciation.
Additionally, I am recommending the purchase of a protective put to hedge against a post-earnings sell-off. The goal is for this put to expire worthless. However, as we’ve seen in the past, the put could explode in value if TGT sells off sharply after earnings, thus offsetting some of the downside in shares.
Note: No action is needed on the TGT Jan 2024 Monthly (1/19/24) 150 Call at this time.
Current Stock Price: $178.96
Cost Basis: $42.06
- Buy to close the TGT Nov Monthly (11/18) 170 Call for around $13.35
- Sell to open the TGT Dec Monthly (12/16) 180 Call for around $9.87
- Set initial debit limit at $3.48, but adjust as needed to roll today
- Buy to open the TGT Nov Week Four (11/25) 155 Put for around $1.41, but adjust as needed to buy a put today
New Cost Basis: $46.95