Target Option Trade: Selling High Volatility Before Earnings

Traders selling put options before Target's earnings announcement on Friday can capitalize on increased implied volatility caused by the earnings report. This strategy generates premium income and lowers the breakeven point for the trade. Selling a put option on TGT, such as the August 21st $140-strike put, yields around $126. If TGT falls below $140 at expiry, the trader must buy 100 shares at $140, resulting in a net cost of $138.74.

If the stock stays above $140, the put expires worthless, granting a 0.9% annualized return on capital at risk. Target Corp. has transitioned from a brick-and-mortar retailer to an omni-channel entity, modernizing its supply chain and expanding its digital presence. Of the 35 analysts covering Target, 10 have Strong Buy ratings, 3 Moderate Buy, 18 Hold, 1 Moderate Sell, and 3 Strong Sell.

Selling a Target put option before earnings can provide income, but understanding risks, such as assignment and unlimited losses, is crucial. Conservative investors may opt for a bull put spread by purchasing a further out-of-the-money put. Options involve risk, with the potential to lose 100% of an investment; thus, investors should conduct their due diligence and consult financial advisors before making any decisions.