Options Activity Alert: FDO, BBBY, RIO

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.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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