Optimist enacts bullish risk reversal on Dollar Tree Stores ahead of earnings

DLTR – Dollar Tree Stores, Inc. – An investor expecting shares in Dollar Tree to rally significantly by November expiration initiated a bullish risk reversal on the stock today with the price of the discount retailer’s shares up 2.55% at $43.10 as of 3:05 pm ET. It looks like the trader sold approximately 4,825 puts at the November $40 strike for an average premium of $1.30 each in order to partially finance the purchase of the same number of call options at the higher November $45 strike for an average premium of $1.60 apiece. The net cost of putting on the risk reversal trade amounts to $0.30 per contract. Thus, the investor is prepared to make money should Dollar Tree Stores’ shares jump 5.1% to trade above the average breakeven price of $45.30 by expiration day in November. The investor may also be making a bullish wager on DLTR ahead of the firm’s second-quarter earnings report scheduled for release before the opening bell on August 19, 2010.

SPWRB – SunPower Corp. – News that solar energy developer, Etrion Corp., agreed to purchase the two initial phases of Italy’s largest solar park from SunPower Corp. for roughly $63.5 million in cash plus debt today sent SunPower’s shares up as much as 5.4% today to an intraday high of $12.59. Shares are currently trading 4.25% higher on the day to arrive at $12.45 as of 3:15 pm ET. The move higher in the price of the underlying stock attracted bullish options players to the August contract. Investors hoping to see SunPower’s shares continue to appreciate ahead of August expiration purchased roughly 1,000 calls at the August $12.5 strike for an average premium of $0.50 each. Call buyers make money if SPWRB’s shares can rally another 4.4% to surpass the average breakeven price of $13.00 by expiration day. Other optimistic individuals sold 1,100 in-the-money puts at the August $12.5 strike to take in an average premium of $0.60 apiece. Put sellers retain the full premium enjoyed on the transaction as long as SunPower’s shares are trading above $12.50 through August expiration. Investors short the puts are ready and willing to have shares of the underlying stock put to them at an effective price of $11.90 in the event the put contracts land in-the-money at expiration day.

VZ – Verizon Communications, Inc. – Shares of the provider of communications services increased as much as 1.725% during the trading session to secure an intraday high of $30.06, but are currently up a lesser 1.25% on the day to stand at $29.92 as of 2:50 pm ET. Bullish strategists dominated options activity on the stock today with a number of investors scooping up call options in the August and September contracts. Near-term optimists purchased approximately 4,100 calls at the August $30 strike for an average premium of $0.30 each. Traders long the calls make money if, by expiration, Verizon’s shares exceed the average breakeven price of $30.30. Bulls looked to the higher August $31 strike to buy some 3,000 calls for an average premium of $0.05 apiece. VZ’s shares must rally 3.8% over the current price of $29.92 in order for investors long the August $31 strike calls to make money above the average breakeven point at $31.05 by August expiration. Traders expecting shares of the underlying stock to appreciate ahead of September expiration purchased about 2,300 calls at the September $30 strike for an average premium of $0.60 a-pop. Investors long the calls are poised to profit should Verizon’s shares rally 2.3% to first surpass the current 52-week high of $30.53, and ultimately breach the average breakeven point on the calls at $30.60 by expiration day next month.