Fast Food Stock Falls Alongside Full-Year Forecast

WEN options volume is running at 16 times the average intraday amount

Assistant Editor
Nov 10, 2021 at 10:29 AM
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Fast food stock Wendy's Co (NASDAQ:WEN) is reversing course from its pre-market gains, down 8.7% to trade at $21.04 at last check. The company reported third-quarter earnings of 19 cents per share, which is just above analysts' expected 18 cents per share, as well as better-than-expected revenue, and increased its share repurchase program. However, Wendy's also lowered its full-year forecast -- taking into account the labor shortage and higher costs of raw materials. 

Today's negative price action has WEN gapping below both the $21.50 level, a trendline that has captured the stock's pullbacks since July, as well as its year-to-date breakeven level. Now trading at its lowest level since early April, Wendy's stock is eyeing its first loss in six days. It's also worth noting that Wendy's stock has landed on the short sale restricted (SSR) list. 

Analysts have yet to chime in this morning. Of the 18 analysts in coverage, 12 carry a "strong buy" rating on WEN, with six a tepid "hold." Meanwhile, the 12-month consensus price target of $26.85 is a 28.2% premium to current levels.

Options traders are of similar bullish sentiment, with 10.64 calls bought for every put in the last 10 weeks at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than all but 1% of readings from the past year, showing long calls being picked up at a much faster rate than usual. 

Options traders have been quick to the draw this morning, with options volume running at 16 times what's typically seen at this point.  So far, 4,860 calls and 6,792 puts have crossed the tape. The November 22 put and the November 23 call are the most popular. 

It's also worth pointing out that WEN ranks extremely low on the Schaeffer's Volatility Scorecard (SVS), with a score of just 2 out of 100 before today's earnings event. In other words, the security has consistently realized lower volatility than its options have priced in, making the stock a potential premium-selling candidate.

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