DPZ ? Domino?s Pizza, Inc. ? The pop in shares of Domino?s Pizza following the company?s better-than-expected third-quarter earnings report this morning is delivering hefty paper profits to traders who snapped up call options on the stock yesterday. Shares in DPZ rallied more than 8% this morning to touch $41.51, the highest level since March, after the company posted earnings and sales for the third quarter that beat analyst expectations.
One or more options players benefiting from the sharp rise in the price of the underlying today purchased 277 calls at the Oct. $37 strike on Monday for a premium of $1.95 apiece. Premium required to buy these deep in-the-money calls has doubled overnight to $3.90 as of midday on Tuesday.
Meanwhile, traders positioning for shares in Domino?s to extend gains in the near term picked up around 640 calls at the Oct. $42 strike for an average premium of $0.32 apiece. Buyers of the $42 calls profit at expiration later this week as long as DPZ shares rally 2% to exceed $42.32. Like-minded bulls purchased Nov. $42 strike calls today that make money given a more than 3% move to surpass $42.80 by November expiration.
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HD ? Home Depot, Inc. ? Options activity on home improvement retailer, Home Depot, Inc., this morning suggests one player sees shares in the name trading in a range through January 2013 expiration. The shares today are up 0.35% to stand at $60.85 as of 12:05 p.m. ET. Shares are off roughly 4% since the stock traded up to a more than 10-year high of $63.20 on October 5th.
A 2,000-lot straddle established at the Jan. 2013 $60 strike this morning results in maximum possible profits of $4.97 per contract for the seller if Home Depot?s shares settle at $60.00 at January expiration.
The straddle-seller may keep some portion of the $4.97 in premium received on the strategy as long as HD shares trade above the lower breakeven price of $55.03 or below the upper breakeven price of $64.97. The strategy starts to lose money given a more than 6.5% rally or near 10% pullback in the price of the underlying from the current level of $60.85 by expiration next year.
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