Options Traders Doubled Their Money on This Surging Retail Stock

Dollar Tree was trading above the key $90 level in mid-October

Nov 30, 2017 at 2:44 PM
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Subscribers to Schaeffer's Weekend Trader Series service recently doubled their money on our Dollar Tree, Inc. (NASDAQ:DLTR) February 87.50 call recommendation. Here's a closer look at what had DLTR stock on our bullish radar, and how the options trade we recommended on Sunday, Oct. 15, unfolded.

Despite getting downgraded on Friday, Oct. 13, Dollar Tree stock closed the session up at $91.50, after hitting an annual high in intraday action. We had already been watching the $90 level on the discount retailer after it took out this key technical region the previous week, as it marked an intraday peak in November 2016.

This positive price action was just more of the same for the security, too, which was boasting a 19% year-to-date lead. Plus, DLTR had recently taken out a trendline that had connected lower highs since this time last year -- suggesting more upside could be on the horizon.

Dollar Tree had plenty of upgrade potential, too, which could help draw more buyers to the equity's table. At the time, half of the brokerages covering the shares maintained a tepid "hold" rating. Plus, DLTR's short-term options configuration was unusually put-skewed, per its Schaeffer's put/call open interest ratio (SOIR) of 1.04, which ranked in the 90th annual percentile.

It was an attractive time to purchase premium on near-term DLTR options, too, as evidenced by its Schaeffer's Volatility Index (SVI) of 20%, which ranked just 2 percentage points from a 12-month low. And the equity's Schaeffer's Volatility Scorecard (SVS) of 99 suggested the retail stock had consistently rewarded premium buyers over the past year, relative to what the options market had priced in.

As expected, the stock continued its uptrend, boosted by a round of upbeat analyst attention in mid-November. These positive brokerage notes continued after Dollar Tree's well-received Nov. 21 earnings report, allowing us to close our position on Nov. 29, when the stock was panning record-high territory.

 dltr stock daily chart nov 30

 

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