Dollar General sees 3-way bearish play
Chris McKhann | firstname.lastname@example.org
DG fell yesterday and is down another 1.17 percent this morning, trading at $50.05. Despite the slip, the discount retailer's shares remain above where they were a week ago as they bounced off support just above $48.
Total option volume in the name tops 7,800 contracts, compared to a daily average of 1,400. The volume was almost entirely in an interesting three-way put spread.
The trade involved 2,488 each of the October 50, 48, and 47 puts. The trader bought the 50 puts for $1.47 and sold the other two strikes for $0.69 and $0.48 respectively. The previous open interest in each strike was fewer than 130 contracts, so this was a new position.
The trade, known as a put tree, is essentially a bearish vertical spread with the addition of short puts at a lower strike. The maximum profit comes with DG between $48 and $47 at expiration. If the stock is below $47 at that time, the trader faces assignment and the obligation to buy more shares. (See our Education section)