DG Analysis

Dollar General Corp. (DG)

Update 6/2/2017: DG gapped to the upside after earnings were published and continued to rise the next day. I took the loss with a week left before expiration.

Shares rose b7 9.3% over two days, or a +1,699% annual rate. The options position produced a -37.7% loss on debit for a -6,888% annual rate.

DG publishes earnings on Thursday before the opening bell.

I shall use options that trade for the last time nine days hence, on June 9.

Implied volatility stands at 32%, which is 2.9 times the VIX, a measure of the volatility of the S&P 500 index.

DG’s IV stands in the 63rd percentile of its annual range and the 98th percentile of its most recent broad movement.

The price used for analysis was $71.84.

Premium: $3.86 Expire OTM  
DG-iron fly Strike Odds Delta
Long 79.50 92.4% 9
Break-even 75.86
Short 72.00 52.3% 51
Short 72.00 47.6% 49
Break-even 67.86
Long 64.00 90.8% 8

The premium is 50% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered an order on DG as described above. The stock at the time of entry was priced at $71.86

By Tim Bovee, Portland, Oregon, May 31, 2017


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