Options Trading News

June 6, 2013  Thu 4:45 AM CT

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

Invest Like a Monster - San Antonio: October 9-10

Premium Services

Archived Webinar

Education & Strategy

The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

View more education articles »