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Eleventh-Hour Bears Target Tumbling Yum! Brands, Inc. (YUM)

Yum! Brands, Inc. is roughly 7% lower in the wake of last night's quarterly results

by 7/17/2014 11:51 AM
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Yum! Brands, Inc. (NYSE:YUM) has taken a turn for the worse today, as last night's slimmer-than-expected second-quarter earnings report overshadows this morning's price-target hike (by $1 to $81) at J.P. Morgan Securities. At last check, the stock was off 6.9% to trade at $77.00, prompting a rush of activity in the stock's options pits. Specifically, overall option volume is running at 10 times the average intraday rate, but puts are the clear favorite -- outpacing their call counterparts by a roughly 2-to-1 margin.

The most active YUM strike thus far is the July 79 put, where 4,715 contracts are on the tape. The majority of these crossed on the ask side, and volume outstrips open interest -- two indications new positions are being purchased. Data from the International Securities Exchange (ISE) confirms that at least a portion of the day's activity is of the buy-to-open kind.

The eleventh-hour bears are picking up the puts for a volume-weighted average price (VWAP) of $0.31, making breakeven at tomorrow's close -- when front-month options expire -- $78.69 (strike less VWAP). Due to today's post-earnings plunge, YUM has already surpassed this breakeven mark, and gains will accumulate on each additional move south of here all the way to zero. Should the stock stage a last-minute rally, and finish north of the strike tomorrow night, the most the put buyers stand to lose is the initial premium paid.

Heading into last night's quarterly report, long calls were all the rage on Yum! Brands, Inc. (NYSE:YUM). At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the stock's 50-day call/put volume ratio of 2.71 ranks higher than all other comparable readings taken over the past year. Simply stated, calls have been bought to open over puts at an annual-high clip in recent months. Should YUM continue to wallow in the wake of its earnings report, a continued shift in sentiment could create additional headwinds for the stock.


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