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 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.

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