OptionsHouse

Options Trading News

June 6, 2013  Thu 4:45 AM CT

DG: SEE CHART GET CHAIN FIND STRATEGIES
Dollar General plunged earlier in the week, but the bulls came back in a big way yesterday.

optionMONSTER's Heat Seeker tracking program detected the purchase of some 12,900 January 62.50 calls, most of which priced for $0.95 and $1. There was no open interest at the strike before the trade appeared, which indicates that new money was put to work.

These long calls lock in the price where investors can buy shares in the discount retailer, which gapped lower on Tuesday after a poor quarterly report. Paying less than 1/20th of the share price reduces the amount of capital at risk, while keeping the traders in the game for a possible rally in  the long term.

It also stands to generate significant leverage. A 30 percent move to $65 in the stock price, for instance, would yield a profit of some 400 percent in the calls. (See our Education section)

DG rose 3.19 percent to $50.19 yesterday and is trying to find support at its 200-day moving average. Some investors might think that the last report wasn't bad enough to justify the drop because profit matched expectations and sales only missed the consensus estimate by about $10 million. Management also trimmed guidance slightly as customers shift to lower-margin products.

Overall option volume was 7 times greater than average in DG yesterday, according to the Heat Seeker. Calls accounted for a bullish 78 percent of the total.
Share this article with your friends


Related Stories

DG

Dollar General draws bulls before earnings

August 18, 2016

The discount retailer, which is up 10 percent in the last three months, is scheduled to announce quarterly results before the market opens on Aug. 25.

OptionsHouse

Premium Services

Education & Strategy

Dissecting a big institutional trade

This week's column will study a recent call ratio spread. We're not recommending using this strategy because it has potentially huge risk. But we can learn from this different use of options by a large institutional investor.

View more education articles »