Dunkin' Brands Call-Buyers Are Looking for a Big Breakout

NEW YORK -- Dunkin' Brands (DNKN) has been lighting up OptionMonster's tracking systems, and Wednesday 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. 

On Wednesday, 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 40 cents, and the capital was rolled into a similar number of December 50s for 45 cents and 50 cents. It cost about 5 cents 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," Dr. J wrote in an email as he prepared for CNBC's "Halftime Report" Wednesday. Shares proceeded to run in the afternoon, closing up 1.58% to $48.09, and the December 50s appreciated to 85 cents. 

That kind of leverage is common in the options market because calls are so cheap relative to the stock price. Investors use them to lock in entry levels, ensuring they won't miss rallies and managing risk if shares decline. 

It's also noteworthy that Dunkin' 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 was 14 times greater than average in the session, with overall calls outnumbering puts by more than 40 to 1. 

-- Written by David Russell of OptionMonster

Russell has no positions in DNKN.

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