CAKE Stock Caving In During Closures

Puts are popular in CAKE's options pits

Assistant Editor
Mar 27, 2020 at 10:27 AM
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Cheesecake Factory Inc (NASDAQ:CAKE) is down 8.4% to trade at $19.66 at last check this morning. Recently, the restaurant company's CEO, David Overton, told landlords they would not be paying April rent due to the closings and lack of business amid the coronavirus outbreak. Now, the board of directors has elected to take a 20% reduction in cash retainer fees. The company also furloughed roughly 41,000 hourly restaurant employees, while cutting pay for corporate employees by 10% to 20%.

For the past two weeks, CAKE has struggled to break out above $21, during which came a record low of $14.52 on March 17. The 10-day moving average sits above the shares as well, providing further resistance since late February. 

Analysts have been bearish coming into today, with 12 of 16 sporting a tepid "hold" and two more considering a "strong sell." Also, Cheesecake Factory's 12-month consensus target price of $37 is a whopping 88.2% premium to current levels. 

In the options pits for the past 10 days, 4.33 puts have been bought for every call at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 88th percentile of its annual range, suggesting that the puts -- while quadrupling the number of calls -- haven't been bought at this rate very often this year. 

Echoing this, CAKE's Schaeffer's put/call open interest ratio (SOIR) of 1.75 sits in the 99th percentile of its annual range, suggesting that short-term options players haven't been more put-heavy during the past 12 months. 

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