Bullish Signal Points to New Highs for Shake Shack Stock

Short-term options are relatively cheap right now

by Karee Venema

Published on May 17, 2018 at 2:26 PM
Updated on May 17, 2018 at 2:26 PM

Shake Shack Inc (NYSE:SHAK) hit a two-year high of $59.91 earlier, and was last seen trading up 2% at $59.80. With the shares holding near this peak -- and implied volatilities low after the company's early May earnings report -- it could be time to bet on SHAK stock's next leg higher.

Specifically, the equity's Schaeffer's Volatility Index (SVI) of 32.1% ranks in the 14th annual percentile, suggesting short-term options are relatively cheap at the moment. Plus, the last time SHAK was trading near 52-week highs while its SVI was ranked in the lower fifth of its annual percentile, the security was up 13.87% one month out. While the sample size is small, another move of similar magnitude would put Shake Shack north of $68 for the first time since August 2015.

The shares already boast an impressive year-to-date gain of 38%. And earlier this month, SHAK gapped 18% higher in the wake of its strong first-quarter results. In fact, the equity is pacing for its best month since April 2015.

shak stock price chart may 17

There's an ample amount of skepticism being priced into the outperforming stock, too, which could translate into tailwinds on an unwind. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SHAK's 10-day put/call volume ratio of 1.46 ranks in the 89th annual percentile -- meaning puts have been bought to open over calls at a quicker-than-usual clip.

Plus, short interest jumped 10% in the two most recent reporting periods to 7.78 million shares. This represents 38.15% of the stock's available float, and would take nearly three weeks to cover, at Shake Shack's average daily pace of trading.

A round of upgrades and/or price-target hikes could draw more buyers to the table as well. Of the nine analysts covering the shares, six maintain a "hold" or worse recommendation, while the average 12-month price target stands at a low $49.80.

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