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Frenzied Call Buying At Family Dollar As Shares Hit Record High

Posted on the 30 March 2012 by Phil's Stock World @philstockworld

FDO - Family Dollar Stores, Inc. – Call buyers flocked to Family Dollar Stores today, with shares in the operator of general merchandise retail discount stores trading up as much as 4.6% to a record high of $62.84 on the heels of encouraging consumer sentiment and spending data. The stock posted big gains in the month of March, gaining 15.5% in the past four weeks, and it looks like some traders are positioning for the good times to continue. Bullish trading in the front month calls is heaviest at the April $65 strike where more than 5,000 calls have changed hands against open interest of 324 contracts, as of 12:50 p.m. in New York. It looks like the majority of the $65 calls were purchased for an average premium of $0.45 apiece, thus positioning buyers to profit in the event that shares in FDO add another 4.2% to top $65.45 by expiration next month. Lighter-volume call buying spread to the May $60, $62.5 and $65 strikes, as well as the July $65 strike calls. Nearly 10,000 option contracts are in play on Family Dollar Stores this afternoon, a more than ten-fold increase over the stock’s 90-day average options volume of 925 contracts.

BBBY - Bed Bath & Beyond, Inc. – Shares in the operator of retail chain stores Bed Bath & Beyond, Christmas Tree Shops and others, kicked off the final trading session of the week in positive territory, but have since surrendered earlier gains to trade 0.60% lower on the session at $66.30 as of 11:30 a.m. in New York. Call volume on Bed Bath & Beyond spiked this morning after one strategist initiated a ratio spread in the May expiry. The trader appears to have purchased 2,000 calls at the May $67.5 strike and sold 4,000 calls at the May $70 strike, receiving a net credit $0.05 per contract on the position. If shares settle below $67.50 at May expiration, the trader walks away with $0.05 per contract in hand. The trader adds to that amount as long as BBBY’s shares rally 1.8% to surpass the breakeven price of $67.50, with maximum possible profits of $2.55 per contract available if shares surge 5.6% to settle at a fresh record-high of $70.00 at expiration. Bed Bath & Beyond, Inc. reports fourth-quarter earnings after the final bell this coming Wednesday.

RIO - Rio Tinto PLC – The world’s third-largest mining company popped up on our scanners this morning due to heavier-than-usual trading activity in call options. Volume building at the May $57.5 strike suggests one or more traders are gearing up for shares in Rio Tinto to extend gains in the near term. The stock rallied as much as 2.3% in the first half of the U.S. trading day to secure an intraday high of $55.71. Options players positioned to benefit from further upside moves in the share price exchanged more than 8,000 calls at the May $57.5 strike against open interest of just 234 contracts. It looks like most of the calls in play were purchased for an average premium of $1.82 apiece. Call buyers stands ready to profit should shares in the world’s second-largest iron ore exporter rally another 6.5% to top the average breakeven price of $59.32 at expiration in May.

Caitlin Duffy
Equity Options Analyst

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