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

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Published on Oct 29, 2014 at 10:31 AM
Updated on Apr 20, 2015 at 5:09 PM

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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