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El Pollo Loco Holdings Inc (LOCO) Bears Load Up on Options

El Pollo Loco Holdings Inc put options are gaining traction among the stock's skeptics

by 8/8/2014 2:41 PM
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Options on volatile Wall Street newcomer El Pollo Loco Holdings Inc (NASDAQ:LOCO) have been slowly gaining traction this week. While it's a bit early in the game for any meaningful baseline volume levels to have been established, put activity on LOCO today has ticked up to 1.72 times the expected intraday amount. That translates into nearly 2,900 puts across the tape so far, compared to only 1,763 calls.

The most active LOCO strike today is the September 45 put, where volume stands at 1,026 contracts. Most of the activity here has consisted of smaller transactions, with the largest block consisting of 182 contracts that crossed at the ask price of $12.30 on the Chicago Board Options Exchange (CBOE) around midday. Implied volatility (IV) rose 27.3 percentage points with the trade, and today's volume easily dwarfs open interest of 211 contracts. In other words, this appears to be possible buy-to-open activity -- and data from the International Securities Exchange (ISE) confirms new bearish bets are being opened at this strike today.

Today's September 45 put buyers are paying a volume-weighted average price (VWAP) of $11.88, with the contracts pricing in IV of 130.3% -- up 25.9 percentage points on the session. Based on that VWAP, breakeven at expiration will be $33.12 (strike price minus VWAP).

LOCO is down 5% at $36.92 this afternoon. Shares of El Pollo Loco Holdings Inc (NASDAQ:LOCO) have encountered resistance at the round $40 level this week, so put buyers could be wagering on an extended drop from here. Amid today's pullback in the stock and the uptick in option activity, 30-day at-the-money IV on LOCO has increased to 71.8%, up 6% from Thursday's close.


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