DPZ Watch-listed for short put setup.
350 - 360 zone could be a good area.
This analysis looks at a possible setup for a shorting puts in DPZ if there is a sharp decline. Price would have to fall to trigger this setup.
DPZ trades 395 at time of writing.
Signal Criteria
Signal setup would become active if:
DPZ hits 350 - 360
There is fast bearish price action into this zone
Ideally we’re looking for this zone to fill in a big fast drop which will give us increased IV. This way even if the market does not reverse at this level we may benefit from vol crush/theta and have time to plan exits if it looks like the support will not hold (Or breaks and retests)
Charting Analysis
Our signal here is derived from the tendencies of a 76 retracement low. When a 76 low has been made it is common for a big low to have been made. Usually a 76 will break and an 86 will hit if the downtrend is going to continue. When the 76 is the low, usually the pullback will end on the 61 fib.
From this we have implied odds the market is more likely to go higher than lower off the 61 retest and we also have a firm fail condition that it should not go under the 76. This gives us two of the most critical components of our trade, the entry and stop loss levels.
Trading Possibilities
Selling Puts to Fill
If you’d be willing to buy DPZ at 350, at this point naked puts could be sold for just above this strike. In the event the market ranges where it is, you’ll collect premium. If the market goes up, you’ll collect premium. When the 61 retest and hold works you collect premium and maybe get filled long on the put for stock gains.
Various upside potential with good odds. The risk is you’d be committing to going long DPZ at 350 with no stop loss. There are ways you can mitigate this placing pending sell stop orders to hedge, but even this has gap risk to it. The only sure way to lock in a max loss is to use a put spread to enable a max downside.
Selling Puts for Premium
If the market falls quickly to the support zone, we can short puts for just under the support strike. The statistical probability of these hitting would be high, thus the options pricey. However, by fib norms we’d estimate we’re going higher 3/4 times on a 76 low and 61 retest.
The puts we can short will probably have a statistical probability of profit of 60% or more but in our assessment of the odds as per fib norms the real potential for profit is only about 30%.
Trading Signals
At this time the only potential trade is shorting the puts for the support strike. Either with the intention to fill stock around 355 with a stop loss at 305 and target 570 (With trailing stops along the way). Either naked puts or with a spread buying a strike where the 76 would be failing.
Other trades are watch-listed and waited to see if the conditions for the signal hits.
I think odds here of the 61 hitting are high, or more to the point, I think the odds of 395 area being a local high are good. The current area may also be a good place to short call spreads. This is something we may look at for short term/ mid term option shorts in the week ahead.
Specific strikes and prices signals will be sent out during market hours. This is being written outside of option trading hours and any quotes given now could be very different from what is available when the market opens.