To The Moon

$Target(TGT)$ recent earnings miss and subsequent 20% drop in share price may appear to signal trouble, but for options traders like me, this sharp move could present a lucrative opportunity. While the retailer’s earnings disappointment raises legitimate concerns, it also creates an interesting setup for a potential put-selling strategy — but only after allowing the price to stabilize.

Target’s Earnings Miss

Target’s Q3 results fell short of Wall Street’s expectations, marking its biggest earnings miss in two years. Earnings per share came in 20% below consensus estimates, with revenue also missing forecasts for the first time since August 2023. Here are the key points from the report:

1. Profit Guidance Cut: Target slashed its full-year adjusted earnings guidance to $8.30–$8.90 per share, down from its prior range of $9–$9.70 per share. This is also below analysts’ expectations of $9.55 per share.

2. Flat Comparable Sales Forecast: For Q4, Target now expects comparable sales growth to remain flat. This includes both online and in-store sales for locations open at least 13 months.

3. Minimal Customer Traffic Growth: Despite heavy price cuts and early holiday sales, Target saw only a slight increase in customer traffic — a worrisome sign for a retailer banking on the holiday season to boost results.

This weak performance sent TGT shares plunging 20% in a single day, wiping out significant market value and catching investors off guard.

Opportunity in Volatility

For long-term investors, Target’s earnings miss and cautious outlook may signal uncertainty. But as an options trader, I see an entirely different story. The dramatic sell-off has likely spiked implied volatility in Target’s options, making premiums more attractive for put sellers.

However, timing is critical here.

TGT Daily Chart

1. Let the Dust Settle: A sharp sell-off like this often triggers an initial wave of panic selling, followed by some degree of stabilization or a dead-cat bounce. I intend to wait a day or two to see where the price settles. Jumping in too early could expose me to further downside risk if sentiment remains bearish.

2. Watch for a Bounce: If the price shows a strong bounce tomorrow, it may signal short-term support. This would strengthen my confidence in selling puts, as the bounce could reflect buyers stepping in at perceived bargain levels.

Why Selling Puts Makes Sense

In my view, selling puts on Target is a way to capitalize on the heightened implied volatility and the market’s overreaction to the earnings news. Here’s my reasoning:

1. Defensive Price Levels: With the stock already down 20%, it’s possible that much of the bad news is already priced in. Selling puts at lower strike prices provides a buffer against further downside, while still allowing me to collect a premium.

2. Premium Opportunities: The sharp drop in TGT’s share price likely caused implied volatility in its options to spike significantly. This makes selling puts a more attractive trade, as I can collect higher premiums relative to the risk.

3. Strategic Patience: By waiting a day or two, I can better assess whether the selling pressure is abating or continuing. This will help me choose an appropriate strike price and expiration date.

Key Risks to Monitor

While I see a strong case for selling puts, this trade isn’t without risks.

1. Continued Bearish Sentiment: If Target fails to inspire confidence in the coming days, the stock could face further declines, potentially invalidating my put-selling thesis.

2. Broader Economic Trends: Consumer sentiment and retail performance are heavily influenced by macroeconomic factors like inflation and interest rates. Any negative developments here could weigh on Target’s stock further.

My Game Plan

For now, I’m adopting a wait-and-see approach. I want to observe how TGT performs over the next couple of trading sessions. If the stock stabilizes or shows signs of a bounce, I’ll consider selling puts with a strike price well below the current level, ensuring a solid margin of safety.

However, if the selling pressure persists and the stock breaks through key support levels, I’ll likely hold off on this trade idea entirely. My goal is to capitalize on the heightened volatility while managing downside risk effectively.

What’s Your Take on TGT?

Do you see this earnings miss as a buying opportunity for the long term, or do you think Target’s troubles are just beginning?

Are you considering any trades based on this volatility, or is the risk too high for your taste?

Let me know your thoughts on Target’s situation and whether you see any potential plays here.

@MillionaireTiger @Tiger_comments @Daily_Discussion @CaptainTiger @TigerSG

Disclaimer: This is a general analysis and not financial advice. Always conduct your own research before making any investment decisions.