Target Options Volume Jumps as Stock Plunges 21%, Boosting Demand for Puts
$Target(TGT)$
Shares tumbled to $121.18 at 12:02 p.m., poised for the lowest close in a year, after the company reporting Wednesday morning a 12% decline in adjusted earnings to $1.85 for its fiscal third quarter that ended Nov. 2 after higher inventory boosted supply chain costs, eating into margins. The adjusted EPS missed the average analyst estimate by almost 20%. Sales of $25.2 billion also trailed expectations.
At the same time, the retailer lowered its full year earnings guidance to a range of $8.30 to $8.90, after raising it to $9 to $9.70 in August, as it expects flat same-store sales in the fourth quarter. The latest outlook is below the $9.54 expected by analysts, according to estimates compiled by Bloomberg.
Put options that give the holders the right to sell Target shares at $120 in two days attracted the heaviest volume, with more than 12,500 contracts changing hands so far. That's more than 13 times the open interest. The price of that contract surged 3,500% amid increasing demand for a hedge against continued slide.
Almost 149,000 Target put options changed hands so far across 17 expiration dates that stretch through Jan. 15, 2027. That's almost 12 times the 20-day average, according to Bloomberg data. Including the call options, total volume reached 317,980, more than 8-fold the average. That made Target the seventh most active stock option behind $NVIDIA (NVDA.US)$, $Tesla (TSLA.US)$, $MicroStrategy (MSTR.US)$, $MARA Holdings (MARA.US)$, $Apple (AAPL.US)$ and $Super Micro Computer (SMCI.US)$.
The more than $33 slump in the stock price Wednesday boosted the probability that the $120 puts will be in-the-money before they expire Friday.
The quarterly results signal Target is likely losing market share to Walmart, Bloomberg quoted Citi analyst Paul Lejuez as saying. Target may need to implement more promotions to drive traffic and sales, making its fiscal 2025 outlook more uncertain, he said. The analyst cut his rating on Target to neutral from buy and lowered his price target to $130, from $188.
The stock's biggest decline since May 2022 took the price well below the lower line of the Bollinger band, a sign to some who study charts that the shares could now be oversold and the trend may turn bullish. Ten other technical indicators tracked by moomoo agree.
Institutional investors and speculators are also posting bullish Target trades, fanning the unusual option activities. The biggest of them was the $3.2 million sale of put options that give the holders the right to sell 400,000 Target shares at $105 by Jan. 16, 2026. That trade could be profitable for the seller if Target shares trade above that strike price by the expiration date.
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