Family Dollar Catches Fire

Family Dollar Stores (FDO, $27.73, up $3.40) is having an outstanding day after announcing earnings that were better-than-expected. The company also raised its second-quarter outlook after posting higher December sales. Quarterly sales rose 4% to $1.8 billion while comparable-store sales climbed 2%.

For the quarter, the company earned $59 million, or $0.42 a share, up from $52 million, or $0.37 a share, versus the year-ago period. The stock has been getting a lot of PR lately and it seems as though a ton of people are buying food there. It has been popping up on Watch Lists and today’s 15% move is impressive.

The options are jumping as a result of a very good quarter from Family Dollar. The January 27.50 calls (FDOAY, $1.20, up $0.90) are the most active and are up 300%! Over a 1,000 contracts have exchanged hands and there seems to be interest in the January 30 calls (FDOAF, $0.30, up $0.15) as well.

The February 30 calls (FDOBF, $0.90, up $0.55) look like a decent trade if you are afraid you are going to miss the boat but I wouldn’t enter into any of the January options. Family Dollar’s 52-week high is $32.50 but there is strong resistance at current levels. Set a limit price of $0.75 for the February 30 calls and if it is triggered, fine. If you get in for 75 cents, target $1.00-$1.25 as an initial exit. If we don’t get in, we will look for something else in the coming days.

The Toll Brothers (TOL, $21.62, down $0.89) trade is sinking along with the rest of the market and the February 20 calls (TEPBD, $3.20, down $0.40) were stopped out at $3.25. We got a 10% profit for two days worth of work. Not bad…

Rick Rouse
Rick@OptionsMentoring.com

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