Mike Khouw's Dollar General Trade

On CNBC's "Options Action," Mike Khouw suggested a bullish options trade in Dollar General Corp. DG.

He thinks Dollar General is a defensive stock in this situation and he wants to use a call spread risk-reversal to take a long position. Khouw wants to sell the June $145 put, buy the June $165 call and sell the June $185 call. With this options structure he gets a credit of 50 cents, and if the stock trades to $185 or higher, Khouw could make a profit of $20.5.

He starts to lose money if the stock drops below $144.50 at the June expiration. In case of a decline below $145, he is going to have to buy the stock at that price.