Put Traders Hungry For These 2 Restaurant Stocks

El Pollo Loco Holdings Inc (NASDAQ:LOCO) and Yum! Brands, Inc. (NYSE:YUM) are seeing increased options activity today

by Alex Eppstein

Published on Nov 13, 2015 at 11:32 AM
Updated on Jun 24, 2020 at 10:16 AM

Wendys Co (NASDAQ:WEN) made waves earlier after receiving a bullish nod from Citigroup, but by no means is it the only fast-food name in the news. El Pollo Loco Holdings Inc (NASDAQ:LOCO) and Yum! Brands, Inc. (NYSE:YUM) are also catching Wall Street's attention, while making notable moves on the charts.

LOCO, for one, has plunged over 12% to trade at $10.10, after the chicken-selling concern reported lackluster third-quarter sales and reduced its full-year guidance. The numbers also prompted Baird to downgrade its rating to "neutral," while cutting its price target to $12 from $18 -- echoing a prior cut to $17 from $19 at Jefferies. Earlier, in fact, the stock skimmed an all-time low of $9.58 -- its first trip into single-digit territory -- and was placed on the short-sale restricted list.

Amid these developments, LOCO's intraday option volume has exploded to 10 times the usual rate -- with puts holding a slight advantage over calls. Compared to the longer-term trend, today's activity is an aberration. During the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.47 calls for every put -- a ratio that ranks in the bullish 98th percentile of its annual range.

Despite the aforementioned analyst attention, the brokerage bunch is largely upbeat toward El Pollo Loco Holdings Inc -- handing out five "strong buys" versus one "hold" and not a single "sell." If the shares continue to struggle, an unwinding of optimism among option traders and analysts alike could result in additional headwinds. 

On the other hand, YUM was last seen 1.8% higher at $68.34. Sparking the upward momentum, the company earlier said its same-store sales in China grew 5% in October,overshadowing a price-target cut to $90 from $94 at Oppenheimer. Longer term, though, the shares are still sitting on a 6% year-to-date deficit.

YUM puts are flying off the shelves at midday, running at triple the average intraday clip. This echoes the withstanding trend at the ISE, CBOE, and PHLX, where the stock has racked up a 10-day put/call volume ratio of 0.83 -- in the 70th percentile of its annual range.

Skepticism prevails among analysts, as well. Yum! Brands, Inc. has received 10 tepid "hold" ratings, compared to six "strong buys." However, short sellers have been throwing in the towel. Short interest on YUM dropped nearly 14% during the last reporting period, and now constitutes less than 2% of its total float.

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