TJX: Maxxed Out?

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The TJX Companies (TJX) is better known to most folks as T.J. Maxx, Marshalls, and Home Goods stores. Total store count exceeds 2,000 which is testament to the excellent growth of this company that began in 1956.

TJX management should be considered prudent as the stock's total debt is exceeded by its total cash position. That is a unique and enviable fundamental position for TJX in the very competitive sector of retail sales and I have no problem with the TJX balance sheet.

Earnings per share continues to improve, but not well enough relative to the P/E ratio of 20X as the mid-teens is more appropriate relative to growth rate. Thus, TJX will have to show that the stock can find support from the summer well into the big selling season of the fall/winter period.

Technically, TJX has been slowly but surely squeezing the remaining shorts in the stock, as only 1% of the float now is short. The shorts had a rough period since last October as TJX steadily climbed up a mere 50%, or so, during the past several quarters. This is a great reason why you do not short a decent retail company in the fall -- not with the big holiday season in the headlights.

Let's review the T3/OP video with Jill and Scott as they walk through the levels to watch on the charts and same-store sales.

What goes up at times does come down, can revert to the new mean and has many potential sellers in the wings. That is my contrary focus at this time. Unless TJX is going to remain a "put eater", which I doubt, then I think it is time to speculate on a short-term potential pullback in the stock as the spring selling season for retail stocks comes into play. (Also for reference, options trading professionals colloquially define a stock that defies gravity and short sellers as that of a put eater, implying that the stock steadily climbs up and over one strike price after another.).

Consider a speculative vertical put spread in TJX. This is a medium risk trade because it is 100% risk controlled and medium reward because it is a hedged spread which caps total reward potential.

Trades: Buy to open 3 TJX July 40 puts for $2.00 and sell to open 3 TJX July 35 puts at $0.60.

The total risk for the trade is the premium at risk, or $1.40.

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At the time of publication, Jill Malandrino, Skip Raschke and Scott Redler held no positions in the stocks or issues mentioned.