By Jud Pyle, CFA, chief investment strategist for the Options News Network
has attracted the attention of options traders today, most notably at the July 40 call strike. So far today, we have seen more than 7,000 contracts trade on this out-of-the-money, intermediate-term option. This morning, open interest on the strike stood at 6,862. We also find that the July 47.5 calls have traded more than 7,000 times vs. existing open interest of 2,704.
What is interesting about this call activity is that it was executed as a bullish call spread, with the investor buying the July 40 call and selling the higher-strike July 47.5 call, resulting in a net debit of about $1.64 per spread. This activity gives one picture into a way to take advantage of potential upside in TGT.
TGT reached a closing 52-week low on March 9 of $25.37. In recent weeks, TGT rallied back to the $36 neighborhood, but has dropped more than 4% Monday to touch the $35 mark. In order for this bullish call spread to achieve maximum profit potential of $5.86 per spread, the stock will have to rally about 35% from current levels by July expiration.
What is notable about this call spread is that by purchasing a spread rather than just the 40 calls, the investor gets to spend less at the outset (in exchange for capping his upside).
This bullish activity in TGT could suggest that with same-store sales on deck for Thursday morning, some traders are expecting that retailers could continue to see a rebound (today's market slide notwithstanding). After seeing shares decline precipitously since last summer, many retailers have started to stabilize and we are beginning to see some bullish trends in their shares.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."