Target Option Traders Turn Bearish Following Big Holiday Shopping Weekend

Shares of Target Corporation TGT are up 89% year to date, making it one of the top-performing stocks in the retail sector. However, some large option traders are making some unusually large bearish bets that Target may be running out of steam.

The Trades

On Tuesday and Wednesday, Benzinga Pro subscribers received four option alerts related to unusually large trades of Target options:

• On Tuesday at 9:01 a.m., a trader sold 668 Target call options with an $131 strike price expiring on Jan. 3 near the bid price at 74.1 cents. The trade represented a $49,498 bearish bet.
• On Tuesday at 10:12 a.m., a trader sold 1,238 Target call options with a $135 strike price expiring on Jan. 17 near the bid price at $1.011. The trade represented a $125,161 bearish bet.
• On Tuesday at 12:15 p.m., a trader bought 900 Target put options with an $120 strike price expiring on Jan. 17 at the ask price of $2.791. The trade represented a $251,190 bearish bet.
• On Wednesday at 8:35 a.m., a trader sold 600 Target call options with a $125 strike price expiring on Friday near the bid price at 96 cents. The trade represented a $57,600 bearish bet.

The four large Target option trades trades represent a combined bearish bet of more than $483,000 over a two-day stretch.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest size of the large option trades by institutional standards, they are unlikely to be institutional hedges.

Good News Priced In?

Target investors have had nothing but good news so far in 2019, but the option traders may be betting there is plenty of optimism already priced into Target shares. There doesn’t seem to be any major news item this week that could be prompting the bearish trading action.

On Wednesday, Cowen reiterated their Outperform rating on Target, raised its price target for $150 and named the stock a “best idea” for 2020.

All indications up to this point suggest Black Friday sales performed mostly in-line with expectations. In fact, Telsey Advisory Group CEO Dana Telsey declared Target among a handful of Black Friday winners in an interview with CNBC.

Telsey’s commentary seemingly confirms Google Trends data suggesting Target was among the three most searched retail stores on Black Friday.

Benzinga’s Take

It doesn’t appear the bearish trading in Target options is a reflection of Black Friday sales or any other negative fundamental development. Instead, the call sellers may simply be taking profits on big 2019 gains, while the put buyers are betting on a healthy retracement after a huge 2019 for Target shares.

Target's stock traded around $125.13 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Photo by Mike Kalasnik/Wikimedia.