DPZ Options: Making New Highs in a Correction

The selloff is the market is not yet over; at least, the S&P 500 is still trading under 1900 as the week ends. The selloff frenzy continues to put the market bears in overdrive while weighing the bulls down with lethargic inertia. Nonetheless, options traders have been benefiting from the leverage that stock options provide in allowing profits irrespective of how the market trades.

It is on this note of taking another slice of the options pizza that we explore the options of Domino’s Pizza, Inc. (NYSE:DPZ). Domino’s Pizza with its market capitalization of $4.62B is a pizza delivery company in the United States. As of January 1, 2012, it operated through a network of 9,742 Company-owned and franchise stores, located in all 50 states and in more than 70 international markets.

Why We are Taking a Slice of Domino’s Pizza

DPZ

Shares of Domino’s Pizza made a new 52-week high of $84.88 today and the stock is currently trading up 0.87% to $84.66 as the chart above shows. The fact that shares of Domino’s are making new highs is enough reason to be attracted to the stock, considering the fact that many stocks are trading down. In fact, it is a no-brainer that stocks that are making new highs even during a market correction are best poised to deliver stellar growth when the correction ends.

On a digging deeper, I discovered that the reason behind Domino’s recent gain is traceable to the company’s impressive third quarter results. On Tuesday (October 14), Domino’s Pizza released its third quarter (Q4 2014), which was better than expected.

Highlights of the earnings are presented below:

The company reported revenue of $446.6M to beat the consensus estimate of $434.8M and to mark a 10.5% annual improvement

Earnings came in at $0.63 per share to beat the consensus analysts’ estimate of $0.61 and to mark a 23.5% annual increase

The company reported a 7.7% increase in domestic same store sales

Internationally, Domino’s Pizza recorded 7.1% growth in same store sales

Globally, net store growth was 160 stores during the third quarter

And The Market Responds

On Tuesday when the Q3 earnings were released, the stock surged almost 11% to $84.51.The gains continued yesterday as the stock made a new high of $84.73. The gains have continued today as the stock made a new 52-week high of $84.88 as earlier mentioned.

It is also worthy of note that the trading action on the shares of Domino’s has picked up since Tuesday as traders and investors are diving in to get a piece of the pie. For instance, the trading volume on Tuesday was about 2.28 million shares compared with recent average volume of about 450,000 per day.

How to Trade DPZ Options

I am bullish on Domino’s and I recommend buying DPZ options. The stock has already broken though the $76 resistance of the last one month and I am hoping that the new resistance level around $84 will offer some support to the stock.

In the meantime, I am conscious of the stock’s RSI of 74.24, which suggests that the stock is in overbought levels. The stock has been overbought since Tuesday; hence, I will buy the in-the-money calls to take last minute gains before the probability of a pullback becomes real. Buy the DPZ Jan 2015 70.000 call (DPZ150117C00070000) at an asking price of $15 or lower, set stop loss at $14.40 and prepare to exit at $16.50.

 

— Daily Option Alerts

You May Also Like

About the Author: Daily Option Alerts