Target Zeroed in on New Highs

Dear Reader,

For today’s Trade of the Day e-letter we will be looking at a daily price chart for Target Corp. (TGT).

Target Corp. has evolved from just being a pure brick-&-mortar retailer to an omni-channel entity. It has been modernizing supply chain to compete with pure e-commerce players. Its acquisition of Shipt to provide same-day delivery of groceries, essentials, home, electronics as well as other products.

Now, let’s begin to break down the Daily Price chart with the 50-Day EMA and 100-Day EMA for TGT.

50-Day EMA and 100-Day EMA ‘Buy’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal.

Buy TGT Stock

As the chart shows, on December 13^th, the TGT 50-Day EMA, crossed above the 100-Day EMA.

Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play.

As long as the 50-Day EMA remains above the 100-Day EMA, the stock is more likely to keep trading at new highs and should be purchased.

Profit if TGT is Up, Down or Flat

Now, since TGT’s 50-Day EMA is trading above the 100-Day EMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a TGT call option spread.

For this option spread, the calculator analysis below reveals the cost of the spread is $305 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if TGT stock is flat, up at all, or down 7.5% at option expiration the spread will realize a 63.9% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 63.9% profit potential when the trade was identified*.

The prices and returns represented below were calculated based on the current stock and option pricing for TGT on 3/27/2024 before commissions.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

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Wishing You the Best in Investing Success,