This morning Stern Agee lowered its forward guidance on DRI citing weak sales in the industry. On the downgrade we saw a flurry of unusual option activity in DRI. Early in today’s session a trader bought 4,000 DRI Oct 45 puts for $1.35. This block pushed daily option volume in DRI to a level 4.5 times its average daily volume. Puts can be bought as a hedge against a long stock position, but with the weak chart in DRI this is unlikely. It is more likely that these puts were being bought for bearish speculation. The October expiration also gives this trader exposure to DRI’s next quarterly earnings report on Sep 20th. DRI is historically very weak on earnings. The stock has sold of 6 of the past 8 quarters on earnings day with an average move of 2.5%. With the weakness in the DRI chart and the stock’s historical weakness on earnings this block trade confirms that there is likely more downside in store for DRI.
Trade: Shorting DRI Stock at $46.87 with a $48.35 stop
Target #1: $46.01
Final Target: $44.21
Risk per 100 Shares: $148.00