Getting On Target With TGT

Washington and Beijing are still “very far apart” on trade, U.S. Ambassador to China Terry Branstad announced as trade talks kick off today between the world’s two largest economies. The Trump administration wants a timetable on how China will open up its markets to U.S. exports, and meet pledges with regards to the insurance and financial services sector, as well as reduce auto tariffs.  The Dow is struggling to stretch its eight-session winning streak into another day as the 10-year Treasury note pokes its yield back above 3%. Traders are also bracing for readings on retail sales and the housing market, as well as some speeches from Fed officials.

*Source:  Seeking Alpha

This type of news tend to be shrugged off, but I am looking for strong signals to the upside with the VIX still hovering around 14.00

We turn to Target Corporation today (ticker: TGT):

The VantagePoint platform recently indicated a potential upside breakout in TGT could be forming due to a bullish crossover between 5/1/18 and 5/4/18.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 5/11/18 and 5/14/18. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position two days earlier.  This indicator measures strength and weakness for a 48-hour period, in this case strength.  The move to the GREEN position further makes the case for a potential bullish scenario. Additionally, we see that the predicted high and low for today’s range is above the actual high and low from yesterday’s session.  I want to play the VP bullish indication.

Strategy Discussion

If one were a straight stock trader, simply buying TGT in the $72.50 area could prove to be prudent. You are anticipating a move to the upside. It’s also a conservative way to enter TGT without the limitation of time associated with other strategies. In this scenario, it would also be good practice to place a sell-stop order in the $70.00 area to mitigate potential losses.

For more active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  The first thing you want to do is calculate your target strike.  In order to do this, you need three pieces of information:  current price, date of expiration and at the money implied volatility for that expiration.  For TGT, this calculation targets the $77.50 strike.  You may want to consider buying the June 1st weekly expiration 76.5/77.5 call spread paying $0.24.  The maximum risk is what you paid for the spread and the maximum reward is the width of the spread less any premium paid.  Max risk = $0.24, max reward = $0.76 which yield a reward to risk ratio of 3.17:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.