Target (TGT) Put options: How Much Does A Data Breach Cost

Analysts, commentators, investors, traders and market watchers have all weighed in on the issue of Target Corporation (NYSE:TGT) after its infamous data breach in December last year. I have been mostly silent on Target except for the occasional comment on some related posts. However, I am weighing in on trading options of Target Corporation today as I talk about trading TGT Puts for profit.

Target Corporation with its market capitalization of $34.74B sells a range of assortment of general merchandise and food in its stores. The Company’s general merchandise and CityTarget stores offer a food assortment on a smaller scale and its SuperTarget stores offer a line of food items comparable to traditional supermarkets.

Data Breach and Loss of Investor Confidence

The chart above shows how shares of Target Corporation traded after the news of its data breach broke in December last year. The company suffered a major hit in its share price due to the negative publicity that surrounded the security breach and due to dismal store sales caused by the harsh winter. From the chart, you will also observe that shares of Target Corporation has moments of bullish activity followed by spells of bearish activity as investors rush to sell at any mention of the “data breach.”

How Much Does A Data Breach Cost

Target is set to release second quarter earnings on August 20 and the company has already announced that it would take a $148M hit for the infamous data breach. Target also reports that it expects its second quarter earnings to come in at $0.78 per share down from the prior guidance of $0.85 to $1.00 per share. The general market has been carried away by the $148M hit that Target will take for the security breach but nobody seems to be talking about the real cost to Target’s business going forward.

Since January this year, Target has been spending heavily on damage control and it has been spending money to settle some other breach-related expenses. The company also offered one-year free credit screening services to customers who think that their data might have been compromised. Hence, I posit that a $148M hit might not be enough to bail Target Corporation out of its current predicament.

Target is headed down a slope and I cannot envisage a turnaround in the near-term because any mention of the word “Target” invariably generates the words “data security breach.” Hence, we can expect the following quarters to be filled with more “cautious spending by consumers” in wariness of the fact that a simple transaction in a Target store might feed their personal data to an hacker halfway round the world.

How to Trade TGT Options

Without much ado, TGT puts are the smartest best under the current market conditions and any contrarian move betrays an acute ignorance of general consumer behavior. I am bearish on how options of Target (TGT) should be traded and I recommend the TGT Jan 2015 50.000 put (TGT150117P00050000) at its asking price of $0.83 per contract.

— Daily Option Alerts

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