2 days Ago By Josh Enomoto
After years of struggling, discount retailing giant Dollar Tree Inc DLTR could be crafting a genuine comeback story. What's more, it's not just empty words. Serious money is flowing into DLTR stock, both in the open market as well as in the options arena, implying that the rally still has legs.
The most conspicuous clue that the turnaround may be genuine comes courtesy of Stewart Glendinning , Dollar Tree's chief financial officer. Recently, the executive bought 17,000 shares of DLTR stock at a per-share price of $72.75, a transaction size totaling $1.
24 million. Glendinning succeeded former CFO Jeff Davis on March 30, who previously announced plans to step down. Fundamentally, the move is a quick way to ingratiate oneself into a new role or environment.
In addition, the transaction makes for unambiguous optics. Sure, the selling of one's own company doesn't necessarily inspire confidence. At the same time, people sell securities for all kinds of reasons, many of them mundane, such as for tax purposes.
It's difficult to read into these sales without deeper context. For insider buys? It's a straightforward interpretation: the security in question is perceived to eventually rise in value. Even better, the insider buy doesn't appear to be mere grandstanding.
Amid pressure from the Trump administration's trade war, retailers have been under the gun. Nevertheless, Dollar Tree could be ideally positioned, relatively speaking. First, management stated that tariffs typically take three to four months to impact store inventory, providing a financial buffer.
Second, the company's pricing and cost strategies can help maintain strong value offerings, according to Goldman Sachs analyst Kate McShane. Combined with occupying practically the lowest rung of the trade-down effect — or the purchase of less expensive product alternatives — enthusiasm for Dollar Tree may be fundamentally justified. Unusual Options Activity Sweeps into DLTR Stock While it's always nice to see strong insider buys, it's even more encouraging when the transactions align with outside trading activity.
Earlier on Thursday, Benzinga's options scanner identified several bullish transactions, particularly call options with an $80 strike price. Since the market tends to gravitate toward round numbers — acting as psychological magnets for various order levels — the technical pull could be stronger than normal. Of course, every day, calls and puts are being sold for major securities.
Two factors, though, bring significant intrigue into the above equation. First, one of the $80 calls — which expires on May 2 — was a sweep transaction. Sweeps represent large trades that split across multiple exchanges simultaneously.
Primarily, the takeaway here is speed over price. It's basically the institutional version of a market order. Second, the volume of the sweep calls greatly exceeded the open interest reading.
While it's not 100% for certain, generally speaking, a higher volume count relative to open interest suggests that new positions are being opened. In other words, there appears to be real demand undergirding these DLTR stock call options, rather than just hedging noise. Moreover, as a sweep transaction prioritizing speed, the premium paid for the $80 calls — the ask price of $1.
44 — must be reflected into the equation. Because buying calls represents a debit transaction, at expiration, DLTR stock must be worth $81.44 to break even.
It's possible, then, that DLTR could pop even higher than $80. Setting Up a Bullish Dollar Tree Options Strategy For traders looking for a quick score, the 78/80 bull call spread expiring May 2 could be an interesting proposition. This transaction involves buying the $78 call (at a time-of-writing ask of $365) and simultaneously selling the $80 call (at a bid of $240), resulting in a net debit paid of $125.
Should DLTR stock hit the $80 short strike at expiration, the maximum reward is $75, or a 60% payout. Statistically, DLTR stock enjoys a slight upward bias for a baseline three-week hold; that is, for any given three-week period, the odds of profitability favor the bulls. It's also worth mentioning that DLTR has thrived on prior momentum.
Whenever the prior week saw a return of 5% to 10%, the subsequent eight weeks forward have seen a noticeable lift in long-side odds. That said, while the likelihood of a positive price action appears elevated, investors shouldn't expect dramatic price gains. As such, the most aggressive short leg strike price for the May 2 expiration date should be $81.
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