Target Options Surge Higher

Target Corporation (TGT) shares may have declined Tuesday, but call options traded at double its average daily volume. The troubled retailer beat analyst expectations but nevertheless reported a 7.6 percent decline in second-quarter net income. Same-store sales - a key retail metric - also dropped for the second quarter in a row as consumers flocked to discount retailers like Wal-Mart Stores (WMT). Target also noted that they do not see any indication of meaningful near-term improvement, which sent shares lower.

Target call option trading painted a decidedly more bullish picture than management. The trading continued Wednesday with 1,268 October $60 calls trading hands, which suggests that some believe the retailer will hit $60.40 over the next 58 days. The greatest volume, however took place at the 45 January ‘09 calls, which suggests that a price of $53.40 over the next 149 days. Combined, the call options trading throughout the week suggests a bullish sentiment on the retailer.

Target also saw some activity from Pershing Square’s William Ackman, who holds a large stake in the troubled retailer. The activist investor reduced his holdings in Target by 18.27% at an average selling price of $52.40. Ackman may have taken the action to keep his stake below 10% as the company begins to repurchase shares under a stock buyback plan. The activist investor also still owns a substantial number of shares through swap agreements and long-term call options.

Target Corporation is a retailer that operates large-store general merchandise formats, including discount stores, moderate-priced promotional and tranditional department stores. They provide value to customers through multiple retail formats ranging from upscale discount and moderate-priced to full-service department stores under several names, including Target, Mervyn’s, Dayton’s, Marshall Field’s, and Hundon’s.

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