Options Trading News

January 22, 2013  Tue 4:45 AM CT

Dillard's has pulled back after a big rally, but the bulls are looking for the gains to continue.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 1,000 February 82.50 calls for $1.60. An equal number of February 80 puts were sold at the same time for $1.50, resulting in a net cost of $0.10.

If DDS climbs in the next four weeks, the long calls will likely appreciate in value while the short puts dwindle. The opposite will occur if the shares fall, so the position is similar to owning shares. (See our Education section)

The main difference is that this combination trade will expire worthless if the retailer remains between $80 and $82.50 on Feb. 15. If the stock drops below $80, the trader will be obligated to buy shares for that price.

DDS rose 0.72 percent to $82.07 on Friday and has risen more than 15-fold since early 2009 amid a continuous stream of strong earnings. The investor may also expect support around that key $80 level because it's roughly where the shares peaked in September, and it is the location of the stock's 100-day moving average.

Total option volume was 4 times greater than average in the session, according to the Heat Seeker.
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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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