Domino's Pizza May Nonetheless Be Low cost Right here and Shorting OTM Places Works

Domino’s Pizza (DPZ) inventory stays over 14% beneath our goal value of $498 as proven in my Oct. 17 Barchart article. Furthermore, promoting quick out-of-the-money (OTM) put choices is one worthwhile option to play it.

I mentioned this income-producing play in a follow-up Nov. 18 article, suggesting promoting quick the $390 strike value put expiring Dec. 19 for a one-month 1.667% yield (i.e., $6.50/$390.00).

DPZ inventory – final 6 months – Barchart – Dec. 15, 2025

As we speak, DPZ inventory is nicely over that strike value at $435.31 with 5 days left till expiry. So, this short-put play has labored nicely, because the put premium has fallen to simply 18 cents on the midpoint.

That suggests that traders can roll this commerce over and do a brand new short-put one-month out play. However first, let’s assessment DPZ’s value targets to supply confidence that this can be a good play.

In my Oct. 17 Barchart article, I mentioned Domino’s robust Q3 efficiency. That included its 14.56% fQ3 free money movement (FCF) margin in comparison with 11.5% a 12 months in the past.

Because of this, utilizing analysts’ income estimates, I projected that Domino’s would generate $755 million in FCF over the subsequent 12 months (NTM).

And, utilizing a 4.50% FCF yield metric, that works out to a projected market worth of $16.777 billion (i.e., $755/0.045).

As we speak, in line with Yahoo! Finance, DPZ has a market cap of simply $14.786 billion. That suggests the worth of DPZ may rise by +13.47% (i.e., $16.777b/$14.786b).

In different phrases, DPZ might be price $493.92 per share (i.e., 1.13465 x $435.31).

Different analysts agree. For instance, Yahoo! Finance stories that 34 analysts have a mean value goal (PT) of $496.65. And Barchart’s imply survey PT is $500.53.

Equally, AnaChart.com, which tracks current analyst write-ups, exhibits that 22 analysts have a mean PT of $493.53.

The underside line, then, is that DPZ appears low cost right here. That makes it splendid for short-sellers of out-of-the-money (OTM) places.

For instance, the Jan. 16, 2026, expiry interval, 32 days from at present, exhibits that the $420.00 strike value put possibility contract has a midpoint premium of $6.05.

That strike value is over 3% beneath at present’s value and gives a doubtlessly decrease buy-in level. Furthermore, the short-seller of this contract makes an instantaneous yield of 1.44% (i.e., $6.05/$420.00).

DPZ puts expiring Jan. 16, 2026 - Barchart - As of Dec. 15, 2025 — DPZ places expiring Jan. 16, 2026 – Barchart – As of Dec. 15, 2025

Which means that an investor who secures $42,000 in money or shopping for energy with their brokerage agency can enter an order to “Promote to Open” 1 put contract at $420.00.

The account will then instantly obtain $605.00. Therefore, the 1.44% yield (i.e., $605/$42,000).

Furthermore, it gives a doubtlessly decrease breakeven level, if DPZ falls to $420 over the subsequent month:

$420 – $6.05 revenue obtained = $413.95 breakeven

That’s $21.39 beneath at present’s value – i.e., 4.9% decrease. That gives good draw back safety and a sexy potential buy-in value.

For instance, if DPZ finally rises to $493.92, the upside is:

$493.92/$413.95 = 1.193 = +19.3% upside

That’s a sexy potential anticipated return (ER). Furthermore, traders get to maintain every month’s short-put revenue. For instance, over the past 3 articles (the previous 3 months) that I’ve highlighted shorting DPZ places, an investor may have made $18.60, or $1,860 per put contract shorted:

$6.05 +6.50 + 6.05 = $18.60

The typical funding was $403.00 (i.e., ($400+390+420)/3), or $40,300. Meaning the ROI has been over 4.6% in 3 months:

$1,860/$40,300 = 0.04615 = 4.615%

That can also be the identical as shopping for in at $418.48 from my first article on Oct. 17 and seeing the inventory rise to $437.79 (i.e., $418.48 x 1.04615). That’s barely larger than at present’s inventory value.

In different phrases, the short-put play revenue for the final 3 months is greater than the inventory value achieve over the identical interval. The typical funding was decrease than the value paid for DPZ shares.

The underside line is that shorting out-of-the-money (OTM) places is a sexy option to DPZ inventory.

On the date of publication, Mark R. Hake, CFA didn’t have (both instantly or not directly) positions in any of the securities talked about on this article. All info and knowledge on this article is solely for informational functions. This text was initially printed on Barchart.com