Credit: Shutterstock photoDunkin' Brands has been lighting up optionMONSTER's tracking systems, and yesterday the breakout began.
Our proprietary researchLAB market scanner spotted the doughnut chain in late October as it squeezed between its 50- and 200-day moving averages. Given the strength in other casual dining names, we identified it as a potential long in the Nov. 6 episode of our Market Action webinar.
Yesterday optionMONSTER co-founder Jon Najarian spotted follow-on activity in November and December calls. A block of 12,880 November 47.50s was sold for $0.40, and the capital was rolled into a similar number of December 50s for $0.45 and $0.50. It cost about $0.05 to make the adjustment, which provided an additional month for the stock to rally.
"Not a big winner previously, but big bet on upside from here," Najarian wrote in an email as he prepared for CNBC's " Halftime Report " yesterday. Shares proceeded to run in the afternoon, closing up 1.58 percent to $48.09, and the December 50s appreciated to $0.85.
That kind of leverage is common in the option market because calls are cheap in comparison to stock prices. Investors use them to lock in entry levels, ensuring they won't miss rallies and managing risk if shares decline. (See our Education section)
It's also noteworthy that DNKN pushed above the same $48 level where it rolled over in September. So it could be in the process of breaking resistance.
Total option volume in the name was 14 times greater than average in the session, with overall calls outnumbering puts by more than 40 to 1.
(A version of this post appeared on InsideOptions Pro yesterday.)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
