Option Traders Piling on Family Dollar Stores

12/29/2010 12:01 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

Pessimism is on the rise toward Family Dollar Stores (FDO) ahead of the company's Jan. 5 earnings report, with options players flocking to the stock's puts. The International Securities Exchange (ISE) reports that nearly three puts have been purchased to open for every one call during the past two trading weeks.

In addition, the ISE and Chicago Board Options Exchange (CBOE) report that FDO's ten-day put/call volume ratio comes in at 1.82, which is higher than 69% of all those taken during the past 12 months.

Stock players are also boarding the bearish bandwagon. During the past month, the number of FDO shares sold short increased by 9% to 7.3 million. This accumulation of bearish bets accounts for 6.3% of the company's total float. Should the company report strong earnings next week, it could force the bears into buying back their pessimistic positions, pushing the stock sharply higher.

Technically speaking, the shares of FDO are up more than 78% since the beginning of 2010.

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The stock has been ushered higher by its ten- and 20-week moving averages since January. A positive earnings report could propel the stock higher as these bears abandon their losing bets.

By Jocelynn Drake, contributor, Schaeffer’s Trading Floor Blog

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