Right After Earnings, The Intelligent Options Trade in Domino's Pizza Inc (NYSE:DPZ)

Domino's Pizza Inc (NYSE:DPZ) : Right After Earnings, The Intelligent Options Trade

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This is a simple option trade that starts two-days after Domino's Pizza Inc (NYSE:DPZ) earnings and lasts for the one month to follow, that has been a winner for 3 straight years.

Domino's Pizza Inc (NYSE:DPZ) Earnings
While the mainstream media likes to focus on the actual earnings move for a stock, that's the distraction when it comes to the option market.

For Domino's Pizza Inc, irrespective of whether the earnings move was up or down, if we waited two-days after the stock move, and then sold a one-month out of the money put spread, the results were simply staggering. We use two-days to allow the stock to fully reach equilibrium post earnings.

We can examine this intelligent approach, objectively, with a custom option back-test. Here is our earnings set-up:

* Open short put spread 2-days after earnings
* Close short put spread 29 days later
* Use the 30-day options

If we sold this out-of-the-money put spread in Domino's Pizza Inc (NYSE:DPZ) over the last three-years but only held it after earnings we get these results:

Intelligent Short Put Spread
* Monthly Options
* Back-test length: three-years
* Open 2-days After Earnings
* Close 29-days Later
* Holding Period: 28-Days per Earnings

Winning Trades: 16
Losing Trades: 3
Post-Earnings Short Put Spread Return:  97.6
Annualized Return:  67

We see a 97.6% return, testing this over the last 19 earnings dates in Domino's Pizza Inc. That's a total of just 532 days (28 days for each earnings date, over 19 earnings dates).

We can also see that this strategy hasn't been a winner all the time, rather it has won 16 times and lost 3 times, for a 84% win-rate.

While a short put spread is a strategy that gains profits if the underlying stock "doesn't go down a lot," there is more to this with Domino's Pizza Inc.

This strategy, and that's what it is, a strategy, not some weird promise of a silver bullet, does not take on the risk of earnings, and while it's slightly bullish, it really isn't a stock direction investment either. In many ways, earnings results are just a coin flip -- and we are not interested in flipping coins with option strategies.

What we're after with this approach is identifying companies that make their large stock move the day after earnings -- whether that's up or down -- and after that, find a sense of equilibrium in the stock price for the next month. This is what we find in Domino's Pizza Inc (NYSE:DPZ) .

Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned.

We hope, if nothing else, you have learned about Domino's Pizza Inc (NYSE:DPZ) and the intelligence and methodology of option trading and this idea of equilibrium right after earnings.