Options Traders Bet on Another Post-Earnings Pop for Dollar Tree Stock

Dollar Tree, Inc. (DLTR) tends to make some sizeable moves after earnings

Feb 28, 2017 at 11:03 AM
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Discount retailer Dollar Tree, Inc. (NASDAQ:DLTR) has been a strong performer after earnings in recent years, and it appears options traders are hoping for a repeat performance after the company reports fourth-quarter results tomorrow morning before the open. And even if immediate gains fail to materialize, history suggests the upcoming month could be a boon for the shares. After all, DLTR has been one of the top stocks in March over the past 10 years, ending the month positive 90% of the time, with an average return of 6%.

Getting back to earnings, DLTR has moved higher in the session after reporting five times over the past seven quarters, including an 8.2% jump after the most recent report last November. The shares have averaged a 7.4% swing in either direction in the post-earnings session, and options traders are currently pricing in an even wider 11.3% move for Wednesday. Based on recent activity, plenty of speculators seem to be hoping for another upside move, but there are at least a few bears on board today.

Specifically, DLTR puts are changing hands at six times the expected intraday rate, with roughly 3,200 contracts on the tape, outpacing calls. Most active is the March 78 put, with a sweep of 1,579 contacts crossing this morning. This put buyer is betting on the stock moving further below the $78 mark through front-month expiration, on Friday, March 17.

From a broader perspective, though, call buying has been the more popular strategy of late. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), DLTR has seen 3.79 calls bought to open for every put over the past 10 weeks -- a call/put volume ratio higher than 99% of the past year's readings. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) is docked at an annual low of 0.26, indicating near-term traders are at a call-heavy extreme.

There are still some signs of hesitation outside of the options pits, however. Half of the 20 analysts tracking DLTR rate the shares a "hold" or worse. Simply put, an upbeat earnings result tomorrow could inspire a round of bullish brokerage notes, and thus give the shares a boost.

Technically speaking, the past year has been a bit of a rollercoaster on the charts for Dollar Tree, Inc. (NASDAQ:DLTR), with the shares down 5.4%, last seen at $77.62. But the stock has been a long-term outperformer, riding higher atop the 150-week moving average since 2008. More recently, the shares have been poised above support at a 61.8% Fibonacci retracement of DLTR's October 2015 low and August 2016 high.

DLTR Daily Chart February 28


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