DLTR Credit Call Spread at $0.99 Seems to be Above Fair Value


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This DLTR Credit Call Spread Can Net 33% in 10 Days

Bearish play with a target stock price of $68 or below

Strategy has +33% upside potential and 37% overvalued


Expiration20-Sep-24
Buy72 Call
Sell68 Call
Credit:$0.99


Dollar Tree is weaker by -2.7% today to $66.59. Based on moving averages, DLTR has been in a downtrend since August 21, so this spread would be a great way to leverage a bearish outlook. Based on historical stock price behavior, this spread for DLTR has a theoretical 79% success rate.

Option Profit Calculator for DLTR Call Spread at 20-Sep-24 Expiration

If DLTR stock price at expiration is at or below $68.00, this spread has a 33% upside potential

The optimal stock price for this option strategy is to close at or below $68.00 on the expiration date, September 20, 2024. In that scenario, both calls would expire worthless, allowing you to keep the entire $0.99 you received when selling the spread. That corresponds to a potential +33% return on the amount at risk with 10 days left until expiration.

The maximum gain will be realized if the stock price is at or below 68.00. The maximum gain is $0.99

The breakeven point is at 68.99, which is 3.7% above the current spot price.

The maximum loss will occur when the stock price is at or above 72. The max loss is $3.01.

DLTR Spread Current Market Price vs. Historical Average

DLTR Call Spread is trading at a 37% premium to historical average.

Using historical data to measure how a similar spread in DLTR was priced in the market, the 4-year average value was 0.72, with a high mark of 1.13 and a low of 0.43.

Currently, this vertical call spread is bid at 0.99 and offered at 1.09. The midpoint of the spread is 1.04.

If we use 0.72 as our historical fair value benchmark, the current market bid price is at a 37% premium, while the current market midpoint represents a 44% premium.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
0.991.091.040.721.130.43
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The DLTR call spread we've identified here can be a good way to play a bearish outlook because the option strategy has a +33% upside potential, is 37% overpriced relative to historical measures, and will benefit from a stock price at or below $68.

See how Market Chameleon can help you make smarter and more efficient trades!



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NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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