Option activity lit up in Family Dollar on Friday as discount retailers returned to favor.
optionMONSTER's Heat Seeker program detected the purchase of about 6,900 April 62.50 calls against previous open interest of just 1,177 contracts. The initial blocks priced for about $1.20, followed by larger prints for $1.50. Then the stock pushed higher and those contracts traded for as much as $1.99, which demonstrates the kind of leverage that can be produced with options.
It works because long calls lock in the price where shares can be bought. But they're much cheaper, so even a relatively small move in the stock price can make the calls double or triple.
FDO rose 2.54 percent to 61.37 on Friday and is up 8 percent in the last month. Its next earnings report is scheduled for April 10. Total option volume in the company was 14 times greater than average, with calls outnumbering puts by a bullish 48-to-1 ratio.
Discount retailers rallied strongly as a group coming out of the 2008 financial crisis but then entered a phase of weakness in mid-2012. They've started regaining their momentum in the last month, however, after strong quarterly results from Dollar Tree and bullish call buying in
Dollar General. TJX has also broken out to new all-time highs. (See our r esearchLAB analysis tool for more on the group .)
(A version of this post appeared on InsideOptions Pro on Friday.)
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