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August 10, 2012  Fri 12:23 PM CT

TGT: SEE CHART GET CHAIN FIND STRATEGIES
A trader is doubling up on a bullish bet in Target ahead of its earnings report next week.

optionMONSTER's Heat Seeker system detected the sale of 2,000 August 62.50 calls for $0.71 against open interest of 6,021 contracts and the purchase of 4,000 September 65 calls for $0.41 against open interest of 660, according to optionMONSTER's Heat Seeker system.

Both trades were completed at the same second. The calls were below open interest in the August options but not the September contracts, indicating that a trader was closing the front-month position and rolling it forward.

In addition to getting more time for the upside strategy to work, the trader doubled the number of long calls and bought a higher strike price, indicating an increasingly bullish bias. The premium collected from the August call sale will be applied to the purchase of the September contracts.

TGT is off 0.11 percent to $62.62 in afternoon trading. The retail giant bounced off support at $60 with strong same-store sales data on Aug. 2, and it has been drifting higher since then.

The company is scheduled to release second-quarter earnings results on Wednesday. If those September calls are held until expiration, the stock would need to gain at least 4.3 percent in the next six weeks for the trade to be profitable. (See our Education section)
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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