TGT Analysis

Update 5/20/2015: TGT dropped throughout the day toward the entry point. The lack of net movement plus a sharp plunge in implied volatility brought the options near enought maximum profit for me to close the position to avoid further time risk.

Shares rose 0.9% over one day, or a +342% annual rate. The options position produced an 84.6% yield on debit, for a +30.885% annual rate.

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The discount retailer Target Corp. (TGT), headquartered in Minneapolis, Minnesota, publishes earnings on Wednesday before the opening bell.

I shall use the MAY4 Weeklys series of options, which trades for the last time three days hence, on May 22.

[TGT in Wikipedia]

TGT

Ranges

Click on chart to enlarge.

TGT at 11:05 a.m. New York time, 30 days hourly bars

Implied volatility stands at 24.1%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. TGT’s volatility stands in the 98th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	79.56	81.26	81.37
Lower	76.16	74.46	76.46
Gain/loss	2.2%	4.4%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

The position provides complete coverage of the one standard deviation range within the profit zone.

Iron condor short the $80 calls and long the $81.50 calls,
short the $76 puts and long the $74.5 puts
sold for a credit and expiring May 23
Probability of expiring out-of-the-money

MAY4	Strike	OTM
Upper	80	73.1%
Lower	76	67.4%

The risk/reward ratio stands at 1.1:1. The premium is $0.75 ($0.32 for the calls and $0.33 for the puts).

Decision for My Account

I've opened a position on TGT as described above.

-- Tim Bovee, Portland, Oregon, May 19, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.