Target Corp. (TGT), Trending Stock Report

Target Corp. (TGT) is trending in the news after an earnings surprise. The better-than-expected report caused a 16% gap up at the open in TGT’s share price yesterday. The stock pulled back during the day, but share prices closed up 10% from the previous close. Volatility expectations got crushed after the report. In fact, volatility expectations may have fallen too far.

Investors may be underestimating the potential impact of upcoming known events before the October 18^th options expire. Between now and then, you’ve got the Fed Chair speaking tomorrow, we will have 2 employment reports, 2 CPI reports, 2 PCE reports, all during a seasonal period of rising volatility. On top of that, we will have the lead-up to the presidential election. It also tends to contribute to rising volatility. It’s surprising that volatility expectations are this low for TGT right now.

This Volatility Term Structure for TGT shows us the implied volatility for the at-the-money options for each expiration. To learn more about Volatility Term Structure, click here. This graph tells us that options expiring October 18^th are the cheapest relative to all other expirations. This is why we will focus on that expiration for our option buying strategies.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of TGT’s stock price over the past year. You can see that the actual behavior of the stock (the blue histogram) does not match the modeled expectations. This graph tells us that TGT makes large moves much more frequently than modeled options prices expect. That is good news for option buyers.

This Volatility Cone shows us the implied volatility of options for each term compared to the average historical volatility (the blue line) of TGT options at each term. To learn more about the Volatility Cone, click here. It also shows the high and the low historical volatility for each term. This graph confirms volatility expectations for every term are below the 1-year historical average. That is good for option buyers

TGT volatility expectations got crushed after a surprisingly good earnings report caused the stock price to gap up. Investors may be underestimating the impact of upcoming events during a seasonal period of rising volatility. That is good news for option buyers.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea.