Discount retailer Dollar Tree (DLTR) is down 10% over the past year amid a slowdown in consumer spending on goods. One trader sees shares trending lower in the weeks ahead.
That’s based on the August $110 puts. With 72 days until expiration, 3,502 contracts traded compared to a prior open interest of 110, for a 32-fold rise in volume on the trade. The buyer of the puts paid $1.76 to make the bearish bet.
Dollar Tree shares recently traded for about $118, so shares would need to drop $8, or nearly 7%, for the option to move in-the-money. The strike price of the puts is near Dollar Tree’s 52-week low of $102.77.
While the company failed to turn an overall profit in the past year, revenues did rise 12%. Shares are pried slightly better than the overall market at 17 times forward earnings.
Action to take: Dollar Tree shares have been in a downtrend since March. But the price has perked up in recent days. Investors should wait for a possible re-test of the recent lows before buying shares.
For traders, the August $110 puts are an attractive play. Any weakness in the markets or in consumer spending could lead to a sizeable drop in shares. Traders can likely see mid-double-digit returns in the months ahead.
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.