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TJX Companies Looks Stable in the Short Term

Can TJX remain above $42.50 through August options expiration?

by 7/17/2012 9:09 AM
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The TJX Companies, Inc. (NYSE:TJX - 44.73) -- parent company of popular retail stores such as T.J. Maxx and Marshalls -- has put forth an impressive technical performance lately, considering its 52-week gain of about 62%, as well as its year-to-date advance of roughly 39%. In fact, the equity has bested the broader S&P 500 Index (SPX) by more than 11 percentage points during the past three months, and it tagged a new record high of $45.11 during Monday's session. Some speculators expect this outperformance to continue, at least through the next month or so.

Puts were the options of choice yesterday, as approximately 10,000 of these options changed hands -- more than quadrupling the equity's average daily volume, and nearly tripling the number of calls exchanged. Most popular was the out-of-the-money August 42.50 strike, where close to 8,500 puts were traded. However, the fact that more than three-quarters of them crossed at the bid price -- and that open interest at this strike rose by 6,438 contracts overnight -- underscores our theory of moderately bullish sold-to-open positions. Essentially, these traders are counting on the stock to remain perched atop the $42.50 level through back-month expiration, which would allow them to collect a profit on the play. It may also signal that these speculators would be happy owning TJX shares at a price point of $42.50 and are being "paid to wait" for the stock to fall to this level.

Meanwhile, TJX has seen its fair share of put buying, as well. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day put/call volume ratio of 1.84, indicating that puts bought to open have nearly doubled calls during the past few months. This ratio arrives in the 79th annual percentile, meaning that traders have been picking up puts over calls at an accelerated clip. In a similar vein, the Schaeffer's put/call open interest ratio (SOIR) for the security stands at 2.90, confirming that puts nearly triple calls among options slated to expire in the next three months. This ratio ranks in the 92nd percentile of its annual range, reflecting a much healthier-than-usual appetite for puts over calls among near-term options traders. Given the equity's aforementioned technical prowess, this heavy put activity could end up being a bullish contrarian indicator, should this pessimism begin to unwind.

Meanwhile, a number of brokerage firms still harbor lukewarm feelings toward the retailer. Currently, 13 "buy" or better endorsements have been handed out, compared to nine "hold" or worse suggestions. What's more, Thomson Reuters shows an average 12-month price-target of $46.74 for TJX -- representing a slim premium of just 4.5% to its current price. This configuration leaves the door wide open for upgrades and/or price-target hikes down the road, which could provide a tailwind for the stock.

It should also be noted that TJX will step up to the earnings plate on August 2 (before these short puts expire), and has bested analysts' bottom-line projections in three of the four past quarters. Should history repeat itself for the better, an earnings hit could push the stock even higher -- and cause the securities' bearish fans to run for the exits.


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