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Traders Find Cheesecake Factory Puts to Be the Sweetest Option

One options player may have initiated a long calendar spread on CAKE

by 12/28/2011 2:46 PM
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Cheesecake Factory (CAKE - 29.13) has seen a significant increase in put activity today, as more than 1,400 of these options have crossed the tape so far, reflecting 11 times the equity's expected intraday volume. Most of the action has centered around the January 2012 28 and February 28 strikes, where a total 1,343 contracts have been exchanged.

Digging deeper into the data, it appears that several symmetrical blocks of puts, totaling nearly 700 contracts, simultaneously changed hands at these strikes. The January 28 puts traded closer to the bid price, suggesting they were sold, while the February 28 puts traded at the ask price, indicating they were bought. This activity signals either the rollout of an existing long put position, or the implementation of a long calendar spread with puts. In the latter strategy, the speculator is expecting minimal movement on the stock over the time span of the trade.

However, this affinity for puts is par for the course on CAKE. The Schaeffer's put/call open interest ratio (SOIR) checks in at 1.42, conveying that puts outnumber calls among options slated to expire within three months. This ratio registers in the 93rd percentile of its annual range, which means that short-term options players have been more pessimistically aligned toward the stock just 7% of the time over the past 12 months.

What's more, CAKE's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at 6.83, signaling that puts bought to open have outnumbered calls by almost seven to one during the past couple of weeks. This ratio also ranks in the 93rd annual percentile, confirming that traders have been scooping up bearish options over bullish at a much faster-than-usual clip.

Technically, CAKE has lost about 5% of its value year-to-date, but has outperformed the broader S&P 500 Index (SPX) by close to 7% during the past 60 sessions. On the charts, the stock is on pace to finish a second consecutive week above its 32-week and 40-week moving averages, both of which have served as resistance since late July.

At last check, however, CAKE is down about 1% and is trading at $29.13.


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