Options Trade - Dollar Tree, Inc. (DLTR)

Another Bearish Gap Likely for Dollar Tree!

**OPTION TRADE: Buy the DLTR Nov 2012 45.000 put (DLTR121117P00045000) at or under $1.35, good for the day. Place a protective stop limit at $0.45 and a pre-determined sell at $2.70.

by Ian Harvey

August 15, 2012


There is a bearish mood surrounding DLTR stock according to volume data from the major options exchanges. Scrutiny of DLTR, where DLTR is due to take its turn in the earnings spotlight before the market opens this Thursday, Aug. 16, is extreme due to the incredible increase in stock value over the past few months, which will be hard to maintain if earnings are poor.

Analysts are expecting the retailer to report a profit of 47 cents per share, up from 39 cents per share in the year-ago quarter.

Description of Dollar Tree, Inc. (DLTR)

Chesapeake, Va.-based Dollar Tree, Inc. (DLTR) is a discount store offering all items at a fixed price of $1 or less. Founded in 1986, the company operates 4,250 stores in 48 states and the District of Columbia, selling candy and food, health and beauty care products, paper and toys, among other goods.

Dollar Tree is worth about $12.3 billion, and it rang up $6.6 billion in sales in 2011, with net income coming in at $7.3 billion. DLTR has a solid 21% return on assets, 35% return on equity and operating cash flow of $665 million.

The Rationale

Ahead of earnings, DLTR is in an unfamiliar position on the charts, with the stock trading below long-time support at its 10-week and 20-week moving averages. The security is still up about 22% year-to-date, but DLTR is already hovering just below that closely watched $50 level.

The company has surpassed Wall Street's bottom-line estimates in each of the past four quarters, but DLTR isn't exactly a post-earnings winner. In fact, the stock gapped lower in the immediate wake of its February and May earnings reports, so by buying puts we are assuming another drastic move lower after Thursday's event.

Therefore, based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the DLTR Nov 2012 45.000 put (DLTR121117P00045000) at or under $1.35, good for the day. Place a protective stop limit at $0.45 and a pre-determined sell at $2.70.

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders are not successful because they win.
Options traders win because they are successful.

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