Unusual Option Activity: Dollar Tree (DLTR)

Discount store chain Dollar Tree (DLTR) is down 6 percent over the past year, as the dollar store space has struggled with low margins. One trader sees further downside ahead.

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  • That’s based on the June 2024 $80 puts. With 157 days until expiration, 7,603 contracts traded compared to a prior open interest of 124, for a 61-fold rise in volume on the trade. The buyer of the puts paid $0.40 to make the bearish bet.

    Dollar Tree shares recently traded for about $135, so they would need to drop $55, or nearly 40 percent, for the option to move in-the-money. The strike price of the option is well under DLTR’s 52-week low of $102.77.

    Shares are up about 30 percent from their October lows, and have started to trend lower again.

    Dollar Tree trades at about 20 times earnings, and at about 1 times its price to sales, indicating that it’s hardly a bargain right now. Plus, earnings slid 20 percent over the last year and the company has a paltry 4 percent profit margin.

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  • Action to take: In the short-term, shares are likely to trend lower. Interested investors may like shares following a further pullback. Plus, Dollar Tree does not pay a dividend at this time.

    For traders, the June puts are aggressive, and unlikely to move in-the-money. But they’re inexpensive enough to see triple-digit returns on a modest pullback in shares. Traders may like the options as a way to hedge against any market downside in the coming months.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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