March 19, 2013
Dollar General Corp (DG)
ACTIONS: Buy the DG May 52.50 Calls for $0.90 or less
Dear Fellow Big Money Options Traders,
On February 25, we saw unusual bullish options flow in Dollar General (DG). Institutional options buyers bought 10,000 April 46 DG calls. The stock appreciated from $46 to $49 in the wake of the call buying.
On February 27, industry rival Dollar Tree (DLTR) gapped 13% higher on substantially better than expected earnings news. On March 12, Wal-Mart (WMT) announced February sales normalized at the end of the month. WMT had reported several weeks previously that February sales were being negatively impacted by the payroll tax.
Today, institutional options buyers have returned to DG and are buying the April 52.5 calls over 10,000. It is likely today’s buyer is the same institution that was buying on February 25. So far, this investor has an excellent track record.
DG is scheduled to report earnings on March 25, before market open. The stock has pulled back from a recent high of $49 to $47.67. Given the persistence of the bullish flow and the pullback in the stock, we recommend buying the DG May 52.50 Calls for $0.90 or less.
Have a good week trading.
Nick Atkeson and Andrew Houghton
Big Money Options