Dollar General has not participated in this week's broad market rally, and option activity today is looking for limited downside in the name.
DG fell yesterday and is down another 1.17 percent this morning, trading at $50.05. Despite the slip, the discount retailer's shares remain above where they were a week ago as they bounced off support just above $48.
Total option volume in the name tops 7,800 contracts, compared to a daily average of 1,400. The volume was almost entirely in an interesting three-way put spread.
The trade involved 2,488 each of the October 50, 48, and 47 puts. The trader bought the 50 puts for $1.47 and sold the other two strikes for $0.69 and $0.48 respectively. The previous open interest in each strike was fewer than 130 contracts, so this was a new position.
The trade, known as a put tree, is essentially a bearish vertical spread with the addition of short puts at a lower strike. The maximum profit comes with DG between $48 and $47 at expiration. If the stock is below $47 at that time, the trader faces assignment and the obligation to buy more shares. (See our Education section)
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