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Though Target Corporation (NYSE:TGT) reported stronger-than-expected second-quarter earnings of $1.19 per share this morning, the good news was counterbalanced by the retailer's revenue miss and reports of poor customer service ratings in Canada. As such, options activity on both sides of the fence has escalated today, with roughly 44,000 options -- more than nine times the average intraday norm -- crossing the tape so far.
With the shares down 3.5% to trade at $65.57, many of TGT's traders are betting on continued downside through the week's end. So far, more than 5,600 contracts have crossed at the weekly 8/23 65-strike put for a volume-weighted average price (VWAP) of $0.28. The majority of these contracts went off at the ask price, suggesting they were purchased. Additionally, volume exceeds current open interest levels, which -- along with data from the International Securities Exchange (ISE) -- suggests some buy-to-open activity at the strike.
By purchasing these near-the-money options, today's bearish bettors expect TGT to fall at least 1.3%, to end south of the breakeven price of $64.72 (strike price less the VWAP) by this Friday's close, when the options expire. As of now, the odds are slightly against the put buyers, as delta at this strike sits at 0.39, or 39%, representing a 2-in-5 chance of the options finishing in the money upon expiration. Should Target fail to breach the 65 mark by the end of the week, the most the put buyers risk losing is the initial premium paid.
Today's bearishly skewed activity is nothing new in TGT's options pits of late. In fact, the traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open almost seven puts for every call during the last 10 weeks. The resulting 50-day put/call volume ratio of 6.86 ranks higher than 98% of all other such readings taken over the past year, indicating puts are being picked up over calls at a near-annual-high rate. Likewise, TGT's Schaeffer's put/call open interest ratio (SOIR) of 2.08 ranks in the 75th percentile of its annual range. In other words, short-term speculators are more put-heavy than usual toward the big-box retailer right now.
Elsewhere, however, TGT has received "strong buy" endorsements from nine out of the 19 analysts weighing in. Furthermore, the stock's 12-month price target of $73.83 stands in untouched territory. This leaves plenty of wiggle room for further downgrades and/or price-target cuts, which could serve as contrarian headwinds for the stock.
Technically, Target Corporation (NYSE:TGT) has gained less than 6% year-over-year. On top of that, in the past month alone, the stock has given up 10%, and has underperformed the broader S&P 500 Index (SPX) by more than 5 percentage points.