Failed to Hit the Target – Made a Small Profit Anyway
By Dr. Paul Price of Market Shadows
Last September 25th, we thought discount retailer Target (TGT) looked like a good bet to go higher as its Canadian operations improved along with North American economic activity. TGT was trading for $63.34 when the Market Shadows Put Writing Portfolio sold a single contract of the TGT Jan. 2015, $65 put for $7.60 per share.
As it turned out, things North of the border haven’t been doing as well as expected. Target also managed to experience a major customer data hacking event around the busy Thanksgiving season. Shares were down $3.93 (-6.2%) from our trade inception date through mid-morning today, at $59.41.
We don’t like Target as much as before. After the June-July rally we decided to close out our Jan. 2015, $65 put for $7.30 per share.
This highlights the beauty of being option sellers. Nine and half months of time decay allowed us to make a small profit on a stock that declined in price by more than 6%. Target might continue its recovery but I now prefer other retail names, like Urban Outfitters (URBN) , Wal-Mart (WMT), PetSmart (PETM) and Bed Bath & Beyond (BBBY) as more predictable plays for put writing.
Check out all our closed-out and current option positions by clicking on this link…
