Put Traders Emerge Ahead of Dollar Tree Earnings

Options traders have been more bearish than usual towards DLTR in the past two weeks

Managing Editor
Mar 6, 2018 at 12:31 PM
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Continuing on with the trend of retail earnings, Dollar Tree, Inc. (NASDAQ:DLTR) is set to report fourth-quarter earnings tomorrow before the opening bell. DLTR has had a decent year overall, but has pulled back below the 50-day moving average, which could now be acting as resistance -- though the $100 level could serve as a floor going forward. The bargain retailer has picked up 35% over the past 12 months, touching a record high of $116.65 back on Jan. 31, and was trading at $102.60 at last check.

Daily Chart of DLTR Since March 17 with 50ma

Focusing on earnings reactions, DLTR has done well the day after earnings, ending higher five out of the past six quarters. Looking back eight quarters, the shares have averaged a post-earnings move of 5.3% in either direction in the session after the company reports.

For this particular quarterly report, the options market is pricing in a larger-than-usual 9.1% move for Tuesday's trading, going by implied volatility (IV) data. Meanwhile, the security's Schaeffer's Volatility Scorecard (SVS) stands at a lofty 94, which indicates that Dollar Tree shares have handily exceeded options traders' volatility expectations during the past year.

In the options pits, traders have been leaning towards the bears' camp recently. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows DLTR with a 10-day put/call volume ratio of 2.28, ranking in the 85th percentile of its annual range. This indicates puts have been bought over calls at a much faster-than-usual clip in the past two weeks.

But given the equity's long-term rise on the charts, this preference for puts may not indicate bearish expectations. That is, shareholders may be using put options to hedge their positions against a post-earnings slide.

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