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Traders sell Target puts ahead of earnings to monetize elevated volatility
The strategy relies on implied volatility typically cooling after the earnings announcement, which can pull option premiums lower.
Yahoo Finance outlines why some options traders consider selling put options on Target before its earnings release, pointing to elevated implied volatility ahead of scheduled results. The article says that earnings can drive large price moves, and that this usually lifts option premiums.
The piece describes the mechanics of a cash-secured put, where a trader writes an at-the-money or out-of-the-money put while setting aside enough cash to buy the shares if assigned. It notes that if the option expires worthless, the seller keeps the premium, and that premium income can help lower a trade breakeven level.
It also highlights the risk side: if the stock falls below the put strike, the seller may be required to buy Target shares at the strike price. The article adds that implied volatility often drops after earnings, which can reduce option premiums following the announcement.
The strategy is presented as most relevant for traders who are bullish or neutral on Target, betting that the shares will remain above the strike through expiration. The article also flags the potential for assignment of 100 shares per contract at the strike price.