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Use January Options to Play Lackluster Tiffany Ahead of Earnings


Aside from jewelry, it looks like consumers are stocking up on high-end electronics, including Apple and Harman products, for the holidays.

For those that still want the romance of a piece of jewelry, we once again would favor the discounters such as Zale (NYSE:ZLC) or Blue Nile (NASDAQ:NILE), which offer the better value proposition. They also have much better online presence, which as we know is becoming increasingly important to all retailers. This is particularly important for companies who sell something that can said to be essentially a commodity or easily comparable, such as items made of diamonds or precious metal.

Finally, the global demand simply looks weak.

Trading Tiffany

A stroll down Fifth Avenue past Tiffany's flagship shop this weekend showed traffic that seemed less than a typical weekend during the spring wedding season. Europe is dead in the water while Asia seems more infatuated with Gucci and other luxury brands.

Be aware that the company is set to report earnings this Thursday, November 29, and I don't think the outlook will be upbeat. Even if the stock does hold up, I think once the holiday numbers start rolling in after the New Year, it will be set for a decline. The stock is running up to resistance around the $64 level and it is in danger of putting in a reversal today.

I don't want to play this week's earnings so I'm using January options to give some time for my thesis to play out. I have a downside target of $57 looking at setting up a put spread in the January options to capture that move. Specifically;

- Buy the January $62.50 puts for $3.30 per contract.

- Sell the January $57.50 puts for $1.40 per contract.

This is a $1.90 net debit for the spread. This represents the maximum loss that would be incurred if shares of TIF are above $62.50 on the January expiration. The maximum profit is $3.10 and this profit would be realized if shares of TIF are below $57.50 on the January expiration.

Twitter: @steve13smith

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No positions in stocks mentioned.

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