Thursday, August 13, 2015

TGT Analysis

Update 8/22/2015: My TGT position expired Saturday. Shares fell 1.1% over seven days, or a -58% annual rate. The options produced a 100.0% yield on debit for a +5,214% annual rate.

Update 8/14/2015: I've opened a position in TGT as described below. The stock price at the time of entry was $79.28.

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

[TGT in Wikipedia]


I shall use the AUG series of options, which trades for the last time seven days hence, on Aug. 21.


Click on chart to enlarge.
TGT after Aug. 13 close, 30 days hourly bars
Implied volatility stands at 25.2%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. TGT’s volatility stands in the 96th percentile of its most recent rise.

Note that there is a wide difference between the maximum and average earnings moves. TGT had a $6.00 move after an earnings announcement in the 3rd quarter of 2014. The other three post-earnings movements among the last four were $0.26, $0.20 and $1.08.

In constructing the earnings range, I'm tossing out the big move as an outlier and using $1.08 as the adjusted maximum.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, adjusted maximum earns move

The Trade

Iron condor, short the $82 calls and long the $85 calls,
short the $75 puts and long the $72 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money


The premium is $0.53, which is 18% of the width of the position’s wings. The stock at the time of analysis was priced at $78.99.

The risk/reward ratio is 4.7.

The zone of profit in the proposed trade covers a $3.50 move either way. The biggest immediate move after each of the past four earnings announcements was $6.00, or $1.08 after tossing the outlier, and the average was $1.08.

Decision for My Account

I shall attempt on Friday to place a trade on TGT as described above.

-- Tim Bovee, Fukuoka, Japan, Aug. 14, 2015


My volatility trading rules can be read here.


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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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