Target Corp (TGT)

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Target (TGT) Earnings: Iron Condor Could See 43% Return On Risk
By: Barchart | November 9, 2022

Target (TGT) is due to report next Wednesday before the opening bell. The Barchart Technical Opinion rating is an 8% Sell with a weakening short term outlook on maintaining the current direction.

TGT rates as a Strong Buy according to 17 analysts with 2 Moderate Buy ratings and 6 Hold ratings. Implied volatility is 50.01% which gives TGT an IV Percentile of 97% and an IV Rank of 94%.



Target Corp. has evolved from just being a pure brick-&-mortar retailer to an omni-channel entity. It has been modernizing supply chain to compete with pure e-commerce players. Its acquisition of Shipt to provide same-day delivery of groceries, essentials, home, electronics as well as other products.

Target provides an array of owned & premium branded goods ranging from household essentials and electronics to toys and apparel for men, women and kids. It also houses food and pet supplies, home furnishings and d'cor, home improvement, automotive products and seasonal merchandise. It also offers in-store amenities, consisting of Target Caf', Target Photo, Target Optical, Portrait Studio, Starbucks and other food service offerings.

A greater number of general merchandise stores provides an edited food assortment, including perishables, dry grocery, dairy & frozen items. Its digital channels include a wide merchandise assortment, including many items found in stores, along with a complementary assortment.

Today, we’re going to look at an iron condor trade placed over earnings. These types of trades can be high risk, so make sure you understand how they work before attempting something like this.

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

TGT IRON CONDOR

As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

First, we take the bull put spread. Using the November 18 expiry, we could sell the 145 put and buy the 140 put. That spread could be sold yesterday for around $0.85.

Then the bear call spread, which could be placed by selling the 180 call and buying the 185 call. This spread could be sold yesterday for around $0.65.

In total, the iron condor will generate around $1.50 per contract or $150 of premium.

The profit zone ranges between 143.50 and 181.50. This can be calculated by taking the short strikes and adding or subtracting the premium received.

As both spreads are $5 wide, the maximum risk in the trade is 5 – 1.50 x 100 = $350.

Therefore, if we take the premium ($150) divided by the maximum risk ($350), this iron condor trade has the potential to return 42.86%.

If price action stabilizes, then iron condors will work well. However, if TGT stock makes a bigger than expected move, the trade will suffer losses.

Trades held over earnings allow little room for adjusting, so they can be a bit hit or miss. TGT has stayed within the expected range following all six of the most recent earnings releases. Although as we know, past performance doesn’t guarantee future performance.

Conclusion And Risk Management

Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital. Short-term trades also have assignment risk, so traders need to be aware of that possibility. This type of trade may not be suitable for beginners.

Please remember that options are risky, and investors can lose 100% of their investment.

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