We will round up another week of trading stock options today with an exploration of the options of Domino’s Pizza, Inc. (NYSE:DPZ). Domino’s Pizza with its market capitalization of $4.99B is a pizza delivery company in the United States.
The company is operated through a network of 9,742 Company-owned and franchise stores, located in all 50 states and in more than 70 international markets. In addition, it operates 16 regional dough manufacturing and supply chain centers, one equipment and supply facility, one thin crust manufacturing center and one vegetable processing center in the contiguous United States, and six dough manufacturing and supply chain centers outside the contiguous United States.
Update On DPZ Options
On October 17, I wrote a piece about Domino’s Plaza titled “DPZ Options: Making New Highs in a Correction.” In the post, I highlighted how the quality of the company’s Q4 2014 result would lead it to new highs as investor confidence returns.
In that piece, I recommended buying the DPZ Jan 2015 70.000 call (DPZ150117C00070000) at an asking price of $15 or lower. As at 2:00PM EST today, that Jan 2015 70 call options hold an asking price of $20.10 to mark a 34% increase in five weeks.
Interestingly, my analysis on how shares of Domino’s Plaza are likely to trade has proved right within the last five weeks. I had opined, “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.” The underlying stock behind the DPZ call options has surged from an $84.66 trading price on October 17 to a $90.81 share price today as at 2:19PM EDT to mark a 7.26% increase.
An Interesting Chart Pattern
The chart above shows how the shares of Domino’s Pizza have traded in the last one year. You will observe that the stock has had a $71 support and a $76 resistance within the last six months. You will also notice that the stock had a first rally to breakout above the $76 resistance in the middle of October. The stock then went ahead to record another rally to the current $90.81 trading price.
However, you will observe that the stock has not created any support levels in its rally to a $90 trading price. Hence, it is logical to expect a pullback on the share price as the stock tests the ground to obtain support at the current levels. In addition, the stock’s RSI of 83.67 suggests that the stock is firmly in “Overbought” territory; hence, we can expect a little profit-taking action to potentially cause a selloff on the stock.
How to Trade DPZ Options
From the foregoing, it is obvious that a pullback is imminent on shares of Domino’s Pizza; hence, I will be camping with the bears on this. I recommend buying the DPZ Jan 2015 80.000 put (DPZ150117P00080000) at an asking price of $0.60. You may want to set a stop/limit loss order at $0.45 and you should endeavor to raise the stop by $0.50 for every $0.20 gained in order to lock in your profits.
— Daily Option Alerts