Wednesday, November 29, 2006
DG - Dollar General
We warned recently that the speculation about Dollar General (DG) being taken out in an LBO sounded like "street noise" to us. Yesterday the rumor made it on to CNBC and the options and stock went flying. Today the stock is down 4%. No doubt, many went naked long on calls, which during times of rapidly rising implied volatility is one of the best ways to lose money; and that's exactly what's happening today. The only way to win at this type of game is to initiate what's known a time spread on the expectation that volatility will sink. For me, it's just not worth the trouble, especially with so many great futures plays available these days.