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June Call Volume Accelerates on The Cheesecake Factory

CAKE's back-month calls beckon options traders

by 5/16/2012 2:35 PM
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Call volume on The Cheesecake Factory (CAKE - 31.67) has picked up steam today, with nearly 3,800 of these options changing hands so far -- which is 14 times above the norm -- compared to fewer than 300 puts. The majority of the 2,200 calls that have crossed at the June 34 strike traded at the ask price, suggesting buyer-fueled activity. This option presently holds just 117 contracts in open interest, indicating that new positions are being initiated at this strike. In order for traders to collect a profit from these out-of-the-money calls, the stock must surmount the $34 mark by June expiration.

This affinity for calls over puts is more of the same for CAKE. The Schaeffer's put/call open interest ratio (SOIR) sits at 0.70, with calls comfortably outpacing puts among options expiring in three months. In fact, this ratio sits just eight percentage points above an annual nadir, conveying that short-term options traders have rarely been more call-heavy toward the stock over the last 12 months.

Meanwhile, although short interest on the popular eatery slipped by 3% during the past two reporting periods, these bearish bets still make up a hefty 19% of the equity's float. This raises the possibility that short sellers looking to hedge their positions could be contributing to some of the recent call activity. Either way, it would take more than six days to buy back these shorted shares, at the stock's average daily volume.

CAKE has gained some technical ground lately, having advanced by about 8% year-to-date, and outperforming the broader S&P 500 Index (SPX) by around 12% during the last 20 sessions. A look at the charts shows that the stock is poised to close a fourth straight week above its 10-week moving average, which had acted as a ceiling since mid-March.

At last check, CAKE remains flat with Tuesday's close of $31.67.


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