Same-Store Sales Slam Shake Shack Inc (SHAK), Option Bulls

Shake Shack Inc (SHAK) is sliding after its earnings report, due to lackluster same-store sales

Aug 11, 2016 at 10:29 AM
facebook twitter linkedin


As the stock market reacts strongly to retail earnings, Shake Shack Inc's (NYSE:SHAK) quarterly report may be giving shareholders indigestion. Despite topping earnings estimates, the burger joint's same-store sales fell short of expectations, knocking the stock 7% lower to $37.99. And it's not just SHAK shareholders who are hurting -- the reaction among options traders probably isn't much better.

During the last four weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.46 calls for every put. In other words, bullish bets have outstripped bearish ones by a roughly 3-to-2 margin. But with today's steep losses, SHAK traders are switching sides,with puts outpacing calls, roughly 6,500 contracts to 3,700. In fact, puts are trading at 21 times the expected intraday rate and running in the 100th annual percentile, with buy-to-open activity detected at the weekly 8/12 40 strike.

Outside of options land, pessimism toward SHAK has prevailed. About 43% of the stock's float is sold short -- or 8.4 times its usual daily trading level. This opens up the possibility that some of the aforementioned call buyers were actually short sellers seeking upside protection.

On top of that, 70% of analysts rated SHAK a "hold" or worse heading in to today. Following earnings, though, SunTrust Robinson boosted its opinion to "buy" and raised its price-target to $48, while J.P. Morgan Securities upped its target price to $38. On the flip side, Jefferies trimmed its price target to $36 from $38.

Looking back, it's been an absolutely brutal year for SHAK. The stock has lost roughly half of its value since last August, and it appears the shares' recent run higher since their January low at $30 -- fueled by buyout speculation -- has run out of steam.

Of course, Shake Shack Inc's (NYSE:SHAK) technical struggles are simply a microcosm of the struggling restaurant sector. Among the 18 restaurant stocks we follow, the average year-over-year loss is nearly 4%, and just 56% are above their respective 80-day moving averages -- one of the lowest proportions seen on our internal sector scorecard.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

 

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 

 


 


 
Special Offers from Schaeffer's Trading Partners