Options Trading For The Holiday Season

| November 20, 2015 | 0 Comments

holiday-seasonOptions Trading For The Holiday Season

It’s just a week away from Thanksgiving… hard to believe.  The unseasonably warm weather could be making us forget just how close the holidays are.  We’re that much closer to prime shopping season.

The holiday shopping season is closely monitored by the investment world as well.  Many companies make their money during this period of the year.  As a matter of fact, some companies generate over 50% of their revenue in the fourth quarter alone.

The biggest quarter for retail shopping can also provide some interesting investment opportunities.  There will be a lot of news reports coming out about how successful (or unsuccessful) the season has been for certain companies and industries.  And, stocks tend to move on these reports.

So where does options trading come in?

Let’s look at an example.

Here’s the chart of $TGT:

chart of $TGT performance for the last year

The chart above of Target $TGT is pretty ugly.  The retail giant hasn’t had a good year and recently announced even more disappointing news.  As you can see, the stock is near 52-week lows.

So why look at such a big underperformer?

Well, TGT is exactly the sort of company that could get a boost from better than expected holiday sales.  Where I live, people tend to form massive lines to get into Target stores for Black Friday deals.  If that happens again this year, the company could get a much needed shot in the arm.

TGT is trading at a fairly attractive valuation.  So, if the company announces strong holiday sales, value seekers will be sure to snap up shares.

That makes it an ideal candidate for options trading strategies.

So what are the benefits to using options in this scenario? 

Returning to the TGT example, let’s say you think the company is going to do very well during the holiday shopping season.  You also believe the stock could rebound from the current lows.  However, you are concerned about the risk of owning the shares given how poorly the stock has performed so far this year.

Is this not an ideal situation to use options?  More specifically, isn’t this a perfect call buying situation?  (For more advanced traders, this may be an even better put selling scenario).

As a reminder, a call option makes money when the underlying stock goes up before its expiration date.  Click the link for more specifics.

Buying a December or January $TGT call option will allow you to participate in the immediate upside if the stock rebounds.  Yet, you’ll only have to pay the very affordable cost of the call premium instead of the full price of the stock.

What’s more, the catalyst you expect to occur should happen in December, so there’s no reason to buy options any farther out than January.  Once again, this limits your cost and lowers your risk.

This is just one simple example of using options to take advantage of holiday season dynamics.  There are a multitude of strategies you could use, made possible by the flexibility of options contracts.

Like I always say, using options is almost always preferable to using stocks when it comes to trading.

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Options Trading Strategies

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.