Options Trading News

November 20, 2012  Tue 3:47 AM CT

Family Dollar broke out of a month-long range yesterday, and some traders are looking for another pop before the end of the year. 

Nearly 1,200 December 72.50 calls traded in a strong buying pattern, with premiums starting the day at $0.25 and finishing at their peak of $0.75, according to optionMONSTER's Heat Seeker tracking system. Open interest in the strike was a mere 23 contracts at the start of the session, so these are new positions.

FDO rose 4.24 percent yesterday to close at $69.36, rising above several key moving averages and breaking out of a range between about $65 and $67 in place for the last month. Many dollar-store stocks jumped last week when Wal-Mart gapped lower on disappointing sales numbers.

Yesterday's call buyers are betting that FDO will gain roughly 5 percent by expiration just before Christmas. The traders could sell the options earlier at a profit if premiums rise before then, but the calls will expire worthless if the stock doesn't rally. (See our Education section)

Total option volume in the name was more than 9.5 times its daily average of just 301 contracts. Calls outnumbered puts by almost 2 to 1.
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The art of trading

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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