Why call seller is targeting Domino's

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Domino's Pizza is pushing all-time highs, but one investor isn't expecting a major breakout.

optionMONSTER's tracking programs detected the sale of more than 4,000 December 31 calls for $0.85 to $0.95 against open interest of just 11 contracts. The transaction mostly occurred in a period of about five minutes, suggesting that they were the work of a single large trader.

Investors often sell calls when they own a stock but think that its upside will be limited for a specific period. The strategy lets them earn income immediately , reducing the position's cost basis, but also caps potential profits in the event of a big rally.

In the case of today's trade, the trader is willing to accept a maximum exit price of about $31.90. (See our Education section)

DPZ is up 7.39 percent on the day, trading at $29.92 this afternoon. The gain came after the restaurant chain reported better-than-expected earnings, fueled by strong comparable-store sales abroad.

Given that the stock is still trapped around the same level where it peaked last month, some chart watchers may expect it to face resistance over the intermediate term. That would explain today's call selling.

Overall option volume is 15 times greater than average so far today.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: DPZ

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