FDO – Family Dollar Stores, Inc. – Bearish smoke signals curling around the operator of general merchandise retail discount stores suggest some options investors are bracing for the price of the underlying shares to decline by October expiration. Family Dollar Stores’ shares slipped 0.45% lower to $42.83 by 11:35 am ET. Nearly all of the activity initiated in FDO options today involved October $42 strike puts. More than 12,800 puts changed hands at the October $42 strike versus paltry previous open interest of 806 contracts. It looks like the majority of the puts were purchased at an average premium of $1.20 apiece. Put buying players are prepared to make money should FDO’s shares fall another 4.7% from the current price of $42.83 to breach the average breakeven point to the downside at $40.80 by expiration day next month. Increased demand for bearish put options coupled with erosion in FDO shares helped lift the stock’s overall reading of options implied volatility 7.7% to 33.19% by 11:40 am ET.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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