Options Trading News

December 13, 2012  Thu 4:45 AM CT

Family Dollar Stores is trying to recover from steep losses earlier this week, but option traders are positioning for another leg lower.

optionMONSTER's systems detected the purchase of 1,310 April 62.50 puts yesterday, almost all of them going for $3.20. The volume was well above the strike's open interest of just 86 contracts at the beginning of the day, indicating that this is fresh buying.

The option activity was not tied to any stock trades identified by our systems yesterday, though the puts could have been bought to hedge a previously established long position. Alternatively, this could be a straight bearish bet that FDO will fall roughly 11 percent from yesterday's closing level by expiration in mid-April 2013. In either case, those puts will expire worthless if the stock is above the $62.50 strike price at that time. (See our Education section)

FDO rose 3.12 percent yesterday to close at $66.48, regaining some of the ground lost in a severe selloff in the previous session. The discount retailer had been trading above $70 last week but plunged about $5 on Tuesday, dropping with the rest of the sector after rival Dollar General gave disappointing guidance in its quarterly earnings report.

Yesterday's put buying pushed total option volume in the name to 5 times its daily average. Puts outpaced calls by more than 2.5 to 1.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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