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Dollar Tree bulls hunt for bargains

David Russell (david.russell@optionmonster.com)

Forget about the woodshed. Dollar Tree has been getting chainsawed.

The discount retailer had been a steady performer since early 2008, rallying more than 500 percent as cash-strapped consumers looked for lower prices. But it's been falling since June, and is down around $39 from the all-time highs over $56.

On Friday, however, the bulls started looking for a rebound. optionMONSTER's monitoring programs showed the purchase of about 5,000 November 42.50 calls for $0.53 and the sale of an equal number of November 43.75 calls for $0.28.

Owning calls locks in where investors can buy shares, while selling calls obligates them to sell if the strike price is reached. In the case of Friday's strategy, known as a bullish call spread , the trader would buy DLTR for $42.50 and sell the stock for $43.75--a spread of $1.25. It only cost $0.25 to open, so the trader would be looking at a profit of 400 percent if the shares close at or above $43.75 on expiration. (See our Education section)

DLTR fell 0.51 percent to end the session at $39.15. Total option volume in the name was quadruple its daily average, with calls outnumbering puts by more than 7 to 1.

(A version of this post appeared on InsideOptions Pro on Friday.)

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