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Panera's Decline Triggers Last-Minute Bearish Betting

Traders show an appetite for PNRA's front-month puts

by 12/21/2012 12:28 PM
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As fiscal-cliff induced anxieties reverberate across most sectors, Panera Bread Co (NASDAQ:PNRA - 159.32) has shed about 4.2% today -- a move that hasn't gone unnoticed by bearish bettors. More than 2,600 puts have crossed the tape so far, which is more than six times the norm, and about double the number of calls exchanged.

Most popular has been the December 160 put, where more than 1,000 contracts have changed hands -- the majority of them at the ask price, pointing to buyer-fueled activity. These puts traded at a volume-weighted average price (VWAP) of $0.93. Since today's volume exceeds current open interest levels, it's likely that new bearish bets are being established here. By purchasing these puts to open, speculators are counting on the shares to fall south of $159.07 (strike price minus the VWAP) prior to today's close, which is when front-month options expire.

This rush of put activity runs counter to PNRA's current trend. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ PHLX OMX (PHLX) call/put volume ratio sits at 1.52, indicating calls bought to open have easily outstripped puts during the past couple of weeks. This ratio is docked in the 86th annual percentile, meaning traders have been buying calls over puts at a faster-than-usual pace.

It's also worth noting that short interest on the popular café chain rose by more than 4% during the last two reporting periods, and now accounts for roughly 7% of PNRA's available float. This implies that some of the recent call volume could be the work of short sellers looking to hedge their bearish bets. Either way, it would take almost seven days to cover these shorted shares, at the stock's average pace of trading.

Prior to yesterday's session, PNRA had seen a pretty decent week, climbing about 6% and enjoying some bullish analyst attention at Wedbush on Wednesday morning. Specifically, the brokerage firm upgraded the stock to "outperform" from "neutral," and raised its price target to $190 from $160. However, two days of subsequent declines have nearly erased those gains, which may prove to be good news for the aforementioned put buyers.


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