Tiffany & Co.: Buy TIF Calls if the Breakout is established

Tiffany & Co. (NYSE:TIF) is a holding engaged in product design, manufacturing, and retailing activities. The Company’s principal subsidiary, Tiffany and Company (Tiffany), is a jeweler and specialty retailer whose principal merchandise offering is jewelry. The Company offers a selection of TIFFANY & CO. brand jewelry, which includes timepieces, leather goods, sterling silverware, china, crystal, stationery, fragrances, and accessories.

I wrote about trading the options of Tiffany & Co. about 15 months ago in a post titled, “Buy Yourself a Gift with TIF Calls this Valentine”. In that piece, I discussed statistics on how much money Americans spend during each valentine. When I wrote that piece, I mentioned what Americans reportedly spent on Dining out, Candies, Flowers, Romantic getaways and I mentioned that we spent some $1.62B on jewelry for Valentine day in 2012. I then recommended buying TIF call options on the strength of Tiffany’s market positioning as a leading U.S. jeweler.

We Are Back to Tiffany Today

You might be at a loss as to why I am covering the options of Tiffany today, considering the fact that Valentine is long gone and Christmas has not even appeared on the horizon. The main catalyst that triggered my coverage of TIF options today is the impressive rally that I observed in how the shares of Tiffany are trading in today’s session. As at 10:38AM (EDT) today, the shares of Tiffany & Co. have gained an incredible 11.48% to trading around $95.35.

Why is Tiffany Surging Today?

The impressive rally being recorded in the shares of Tiffany today can be traced to the impressive first quarter (Q1 2015) results that the company posted this morning. Highlights of the first quarter results are presented below:

Tiffany reported first quarter earnings of $0.81 per share to beat the consensus estimate of $0.69 per share. Naysayers will be quick to point out that earnings declined 16.5% year over year

Tiffany reported revenue of $962.4M to beat the consensus estimate to $913.5M. Naysayers will be quick to point out the 5% year over year drop in revenue.

Interestingly, the market has largely focused on the fact that Tiffany was able to beat estimates on the top and bottom lines despite the unexpected turbulence that the stock has faced in the year-to-date period.

You’ll remember that the shares of Tiffany fell almost 14% in a single session in January after the company announced the impact of the strong dollar on its holiday sales. The strong dollar continues to be a major headwind for Tiffany because tourists find it expensive to shop in Tiffany U.S. stores and its overseas stores have not fared better. It might interest you to know that about one-quarter and almost 40% of Tiffany’s sales are linked to purchase from foreign tourists.

How to Trade TIF Options

TIF Chart

The chart above shows how the shares of Tiffany have traded within the last one year. You will observe that the stock nosedived from a $105 trading price in January to as low as $85. The stock has then been stuck in a range marked by an $80 support and a $90 resistance.

I posit that three consecutive closes above $90 will establish the breakout and we can then buy call options to that effect. I recommend buying the TIF Nov 2015 95.000 call (TIF151120C00095000) at an asking price of $6.16 if the breakout is established this week.

Photo: Shereen M via photopin cc

— Daily Option Alerts

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