Dillard's seems to be rolling over, and one investor is hitting the sell button.
optionMONSTER's Depth Charge tracking program detected the purchase of 5,000 May 35 puts for $1.30 and the sale of an equal number of May 38 calls for an average premium of $3.92. Volume was more than 8 times open interest in both strikes.
The investor, who probably owns shares in the department-store company, collected a credit of $2.62. The resulting position will let them exit the stock at a maximum price of $40.62 if it's anywhere over $38 on expiration.
Below that level, they've locked in a minimum price of $37.62 thanks to the credit and the puts at the 35 strike. The trade is an example of how options can be used to manage risk. The drawback of the strategy is that they relinquish any gains if DDS stages a sharp rally. See our Education Section for more.
The shares are up 1.87 percent to $40 in early afternoon trading. They more than doubled between August and last month, but gapped lower on March 3 after same-store sales missed estimates.
DDS has been flattening since the beginning of the year, and in January reversed after hitting a 13-year high above $44. That turnaround, plus the bearish gap this month, could make some chart watchers bearish on the name.
Overall options volume in the stock is 21 times greater than average so far today.
(Chart courtesy of tradeMONSTER)
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