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How traders are hedging Dillard's

Dillard's has been powering higher, but one investor apparently wants a hedge.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,000 June 95 puts for $3.70 yesterday. Equal-sized blocks were sold at the same time in the June 90 puts for $1.60 and the June 105 calls for $1.30. Volume was more than 10 times open interest at all three strikes, which indicates that new positions were initiated.

The trade paid $0.80 on the strategy, which is selling calls to help offset the cost of a put spread . The position will inflate to $5 if the department-store operator closes at $90 or less on expiration. The short calls compel the investor to sell shares for $105 if they go above that level, but the trader is probably already long and wants the options for protection. (See our Education section)

DDS fell 1.91 percent to $96.60 yesterday but is still up 6 percent in the last month. The department-store operator has been steadily advancing on strong sales growth and pushed above $100 for the first time ever two weeks ago.

Overall option volume was 7 times greater than average in the session, with the three-way trade accounting for almost 60 percent of the total.

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

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

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