I’m reporting an options trade that executed on Tuesday. It’s not a secret that I think TGT is currently providing decent value in this market. I have been adding shares for months and dollar-cost-averaging. I’ve now amassed a position of 115 shares at a cost basis of $64.36. Shares of Target keep edging lower and are current around $59/share. In addition to keep adding shares, I decided to sell a put. This put allows me the opportunity to pick up shares of TGT much cheaper than my cost basis and even the current market price.
Target is currently yielding 2.9% and S&P Capital IQ has a 3-year estimated EPS CAGR of 8%.
I Sold 1 TGT July 19 ’14 $57.50 Put @ 2.59
This trade could turn out a few ways:
1) I hold shares until expiration and shares are trading above $57.50. I will get to keep the $259 in options premiums.
2) TGT is trading below $57.50 at or before expiration and shares are assigned. I will receive 100 shares of TGT at a cost of $54.91/share. This is a discount of over 6% to where the stock is currently trading and 14.7% below my cost basis of $64.36/share.
3) Shares of TGT go on a run and I decide to buy back the put early for a profit less than $259.
I currently have 9 open options positions and a total options profit of $716 for 2014. My options page has been updated accordingly.
Nice move. I think Target will be back on track in a year or two.
I have plans to keep adding to my position should the stock price continue its decline. Some analysts believe TGT will drop below $50. Anything is possible, but below $50? Are things really that bad?
Hi ADY,
I’m also planning to add to my position as the stock keeps going lower. If TGT goes under $50 I might be backing up the truck. Long-term I think they will be fine.
Take care!
AAI,
Good play here leveraging the option. I doubled down on TGT Friday at $58.25. Of course it ended the day down, but it may keep going, who knows. I’m good for now, but if it goes down another 3-5%, I may buy more.
-RBD
RBD,
Thanks, and congrats on getting more TGT. I hope I can keep averaging my cost basis down if it keeps declining.
Cheers
Love this option trade AAI! Anytime you have the possibility of picking up TGT with a yield of 3.13%, that is a great entry price. Of course making money to wait and see if it works out is even better.
W2R,
I agree with you, I think TGT over 3% yield is a great buy. I plan to keep buying as long as prices are this low. It’s also nice to collect extra cash just in case it goes up in value. I think it’s a win/win.
Take care!
First of all, I wish you well on your trade. Expiration is six months out and literally anything can happen in six months. While the stock chart shows that the stock appears to be oversold at this point, I don’t think it’s reached a bottom yet. I probably would have waited for a bottom to form before selling the put but since it’s six months away from expiration, you’ll probably be OK. One last thing, I personally never buy options back. I simply let them expire and keep the entire premium. Good Luck and Good Trading. Respectfully, Dennis McCain
Hi Dennis,
Thanks alot. You’re right, it’s not a long dated put and the market is certainly volatile. However, I don’t buy/sell based on technicals, only fundamentals. If this isn’t the bottom for TGT, great, I’ll just keep buying more. I’m starting to not buy many options back. Unless it’s a speculative trade that I don’t want assigned or the stock has a quick pop and I can do something else with the funds that might be the only time I’d buy back early. The commission fees also eat in the profits that way. With this trade, I don’t plan on buying the put back. If I get to buy more shares below my cost basis I’m ok with that. I’m also ok if the stock goes up and I collect the premium.
Thanks for stopping by to comment and good luck with your trades as well!