2 Discount Retailers Plummeting After Earnings

The shares of Dollar Tree, Inc. (NASDAQ: DLTR) and Dollar General Corp. (NYSE: DG) are plummeting today, despite both discount retailers reporting a second-quarter earnings beat.

Diving right in, DLTR reported profits of $1.10 on $6.23 billion in revenue, substantially higher than Wall Street's estimates. The company attributed the positive results to a 9.4% sales increase, as cash-strapped consumers sought lower prices during the pandemic. However, coronavirus and civil unrest-related costs exceeded $150 million. At last check, the stock was down 5.1% at $98.93.

Meanwhile, DG scored an all-time-high of $206.98 right out of the gate. The security reported profits of $3.12 on $8.68 billion in revenue, also besting analysts' estimates. The stock has reversed course midday, however, now down 0.3% at $203.46.

Options traders are responding to both quarterly reports. So far, 18,000 calls and 6,611 puts have crossed the tape -- six times the intraday average. The January 2021 130-strike call is the most popular, followed by the weekly 8/28 105-strike call, with positions being opened at the former. This means these bulls are likely speculating on more upside for DLTR going forward. 

On the other side, DG is experiencing a similar uptick in options activity. So far, 18,000 calls have been exchanged, which is six times the intraday average, and nearly triple the amount of puts. The weekly 8/28 205-strike is leading the way, followed by the 210-strike call in the same weekly series, with positions being opened at both. 

Both Dollar Tree and Dollar General stocks have seen high levels of call buying of late. DLTR sports a 50-day call/put volume ratio of 4.51 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 82nd percentile of its annual range. Similarly, DG's 50-day call/put volume ratio of 2.79 at the ISE, CBOE, PHLX ranks in the 88th percentile of its 12-month range.