Dillard's (NYSE:DDS) operates retail department stores located primarily in the Southwest, Southeast and Midwest. The company's stores are located in suburban shopping malls and offer a selection of fashion apparel and home furnishings. It offers national brand merchandise, as well as the Company's exclusive brand merchandise. Dillard's merchandising categories include cosmetics, women's and juniors' clothing, children's clothing, men's clothing and accessories, shoes, accessories and lingerie and home.
Some of our long-time readers have been asking for bearish positions and this opportunity emerged as we were scanning for issues with large percentage moves and robust option prices. The catalyst for the recent downside activity was Dillards quarterly earnings report, in which they posted a steeper-than-expected (29%) drop in profit due to weak demand for women's clothing and furniture. In addition, the company has achieved disappointing sales in recent months and its gross margin has fallen significantly in the wake of marked down prices that were necessary to clear out excess merchandise.
The technical indications suggest a neutral-to-bearish trend for DDS in the near-term and traders who agree with that outlook should consider this position. Readers who are not familiar with the risks inherent in selling uncovered calls should NOT participate in this play.
Fundamentals Chart Earnings Dates Analyst Ratings
Suggested (BEARISH) Option Position:
Sell Call JUN 25.00 DDS-FE
Target Price = $0.35 Open Interest = 1312
Potential Profit (5 contracts @ $0.35) = $175
Initial Margin (5 contracts) = $4,020
Return on Investment (max) = 5.5%
Cost Basis in Stock = $25.35
Days to Expiration = 24