Dollar Tree bulls hunt for bargains

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Forget about the woodshed. Dollar Tree has been getting chainsawed.

The discount retailer had been a steady performer since early 2008, rallying more than 500 percent as cash-strapped consumers looked for lower prices. But it's been falling since June, and is down around $39 from the all-time highs over $56.

On Friday, however, the bulls started looking for a rebound. optionMONSTER's monitoring programs showed the purchase of about 5,000 November 42.50 calls for $0.53 and the sale of an equal number of November 43.75 calls for $0.28.

Owning calls locks in where investors can buy shares, while selling calls obligates them to sell if the strike price is reached. In the case of Friday's strategy, known as a bullish call spread , the trader would buy DLTR for $42.50 and sell the stock for $43.75--a spread of $1.25. It only cost $0.25 to open, so the trader would be looking at a profit of 400 percent if the shares close at or above $43.75 on expiration. (See our Education section)

DLTR fell 0.51 percent to end the session at $39.15. Total option volume in the name was quadruple its daily average, with calls outnumbering puts by more than 7 to 1.

(A version of this post appeared on InsideOptions Pro on Friday.)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: DLTR

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