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Yum! Brands, Inc. (NYSE:YUM) is in the bullish crosshairs this morning, after analysts at Jefferies lifted their price target to $65 from $60 in pre-market activity. As a result, north of 5,200 calls have crossed the tape so far, almost doubling the equity's expected intraday volume. By comparison, just over 3,600 puts have been exchanged. It looks as though some near-term speculators are expecting the stock to reverse its downward trajectory by the end of the week to finish north of its overhead 40-day moving average, which had previously served as support.
Nearly 2,200 calls have changed hands at the weekly 4/12 67.50 strike -- the majority of them at the ask price, pointing to buyer-driven activity. More specifically, these contracts traded at a volume-weighted average price (VWAP) of $0.65. Since today's volume has outstripped current open interest levels -- and implied volatility was last seen 8.9 percentage points higher -- it's likely that fresh bullish bets are being placed here.
In order for traders to realize a profit from these bought-to-open calls, Yum! Brands, Inc. must climb north of $68.15 (strike price plus the VWAP) by this Friday's close, when these weekly options expire. This reflects a 2.2% increase over the stock's present perch at $66.71. Meanwhile, the delta for these contracts sits at 0.40, meaning they have a 40% chance of finishing in the money.
This surge in call volume runs in parity with YUM's recent trend in the near-term options pits. Schaeffer's put/call open interest ratio (SOIR) for the restaurateur stands at 0.96, conveying calls slightly outweigh puts among options with a shelf-life of three months or less. This ratio resides in the 14th percentile of its annual range, suggesting short-term options players are more bullishly biased toward the security than usual.
This upbeat attitude toward YUM seems rather puzzling, considering the stock is barely trading above breakeven year-to-date, and has shed more than 5% on a year-over-year basis. However, even if the shares fail to surmount the $67.50 level by week's end, today's bulls only risk parting with the initial premium paid for their call purchases.