Weekly Call Buyers Flock to El Pollo Loco Holdings Inc (LOCO)

El Pollo Loco Holdings Inc's three most active strikes yesterday will expire Friday night

Digital Content Group
Oct 29, 2014 at 10:31 AM
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El Pollo Loco Holdings Inc (NASDAQ:LOCO) popped 6.4% yesterday, and short-term options traders took notice. This was especially true on the call side of the fence, where contracts changed hands at a 27% mark-up to the single-day norm. What's more, the stock's 30-day at-the-money implied volatility edged 2.5% higher to 68.6%, underscoring the strong demand for short-term strikes.

Diving into the details, LOCO's three most active options yesterday all expire this Friday night. Specifically, the weekly 10/31 35.50-, 36-, and 37-strike calls saw a total of 1,373 contracts cross the tape -- the majority at the ask price, suggesting they were purchased. Open interest rose overnight at each strike, as well, making it safe to assume fresh bullish bets were initiated -- a theory echoed by Trade-Alert.

By buying the weekly calls to open, the traders anticipate LOCO will finish atop the respective strike prices at week's end, when the series expires. Delta for the 35.50-strike call is 0.59, signifying a 59% chance the option will be in the money at week's end. Meanwhile, delta for the 36- and 37-strike calls is 0.43 and 0.26, respectively.

Looking ahead, El Pollo Loco Holdings Inc (NASDAQ:LOCO) will report third-quarter earnings after the close next Thursday, Nov. 6 -- its second such event since going public in late July. Analysts, on average, are expecting per-share earnings of 12 cents from the restaurant chain. At last check, shares of LOCO -- after rallying out of the gate -- are down 1.5% at $35.86.


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