Schaeffer's Trading Floor Blog

Dollar Tree, Inc. (DLTR) Option Traders Cheer Post-Earnings Surge

Post-earnings DLTR put players are making a rare appearance today

by 5/22/2014 11:23 AM
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Option traders alike are most likely cheering today's price action on Dollar Tree, Inc. (NASDAQ:DLTR), with the stock up 7.9% in the wake of its first-quarter earnings report. In fact, over the past 10 weeks, option players have been upping the bullish ante on DLTR, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Since May 1, the equity's 50-day call/put volume ratio on these exchanges has grown to 2.69 from 1.93, and now ranks in the 97th percentile of its annual range. Simply stated, calls have been bought to open over puts with more rapidity just 3% of the time within the past year.

Echoing this call-skewed trend is DLTR's Schaeffer's put/call open interest ratio (SOIR) of 0.59. Not only does this show that call open interest handily outweighs put open interest among options expiring in three months or less, but it ranks in the 40th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward Dollar Tree.

In the front-month series, specifically, the June 52.50 and 55 strikes have been popular among call players, with a collective 13,660 contracts currently in residence. A number of long positions have been initiated here in recent weeks, and thanks to today's post-earnings pop, the 52.50-strike calls have moved comfortably into the money. Based on DLTR's present price of $53.94, the stock needs to rise an additional 2% in order for the higher-strike calls to achieve this status.

In today's session, however, put players are taking their turn in the limelight, with the contracts trading at more than 13 times what's typically seen at this point in the day. A number of these option traders are also targeting the $52.50 mark, and at last check, north of 1,400 contracts had changed hands at DLTR's June 52.50 put. Although it's unclear at the moment as to whether buyers or sellers are driving this action, volume outstrips open interest, confirming that new positions are being initiated.

Meanwhile, with the uncertainty surrounding the company's quarterly earnings results out of the way, the stock's 30-day at-the-money implied volatility has plunged 28.6% to 19.6%. This is the lowest level this metric has been since late April.

On the fundamental front, Dollar Tree, Inc. (NASDAQ:DLTR) announced first-quarter earnings of 67 cents per share this morning -- a penny more than consensus estimates. While revenue fell just shy of analysts' expectations, the company upwardly revised its full-year fiscal outlook. The news was followed up by a mid-morning price-target hike to $50 from $49 from Canaccord Genuity. The brokerage firm also reiterated its "hold" rating on the stock.

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