Options Traders Call Bottom in Sporting Retailer


This post is for education purposes only and should not be interpreted as a trade recommendation.

Down but not out. That’s what some options traders seem to think about a major athletic  retailer.

More than 25,000 June 23 puts were sold Dick’s Sporting Goods (DKS) this morning. Premiums started at $0.30 and dropped to $0.25 as the orders streamed in. Volume was more than 300 times open interest at the strike, an indication that new positions were initiated.

Put selling lets investors to make money as long as a stock holds a given price. Above it, they keep the premium. Below it, they face the risk of potentially huge losses. See TradeStation’s Knowledge Center for more.

In this case, the $23 level in question was last seen in early 2010. The trade follows a selloff that’s erased half its value in the last 14 months. As usual in the retail space, increased competition from the likes of Amazon.com (AMZN) was blamed for the drop.

But some traders may see reasons for hope after margins held up better than expected in yesterday’s earnings report. Revenue missed but the new narrative on the Street is that management should be given time for initiatives like in-house private brands to kick in. That helped DKS claw back from a sharp drop Tuesday morning. The shares rose 2.19 percent to $33.60 in late morning trading.

Then there are the technicals, with DKS’s 50-day moving average recently rising through its 200-day moving average. Chart watchers sometimes view that kind of “golden cross” as a bullish signal.

The put selling accounted for more than half the options activity in DKS so far today. It also pushed total volume in the session to more than 6 times the daily average.

This post is for education purposes only and should not be interpreted as a trade recommendation.


Dick's Sporting Goods (DKS)
Dick’s (DKS) chart showing golden cross
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.