How to Trade Domino's Stock Pullback Tips
- Nishant Pant provides insights on trading the pullback in Domino's stock.
- The bounce in the stock might not be justified, according to the analysis.
- Learn strategies to navigate the fluctuations in Domino's stock value.
The broader market has shown a notable recovery following a growth scare linked to the Japanese central bank's recent interest rate hike. Among the companies benefiting from this rebound is Domino's Pizza (DPZ), which had previously experienced an 18% decline after reporting mixed earnings on July 19. Despite this modest rise, DPZ is facing resistance around the $448 mark, indicating that its upward momentum may be losing steam and could potentially lead to a "dead cat bounce." To mitigate risks associated with this stock's performance, a strategic trade involving options has been proposed. The analysis of DPZ's options chain suggests a high probability—nearly 80%—that the stock will remain below $455 at expiration. This insight has led to a specific trade setup: selling a $455 call option and buying a $460 call option, both set to expire on September 20, with a credit of $145. Credit spread trades like this one are characterized by a high probability of success, with expectations that approximately 70% of such trades will yield profits. However, it is important to note that while winning trades may provide modest gains, the potential losses from unsuccessful trades could outweigh these profits. Therefore, disciplined risk management is crucial for achieving consistent returns over time. This analysis is intended for informational purposes only and does not constitute financial, investment, tax, or legal advice. Investors should consider their unique circumstances before making any financial decisions.