Option Bulls Hungry for Yum! Brands, Inc. (YUM) Calls

Last-minute option bulls are buying to open Yum! Brands, Inc. calls

by

Published on Oct 31, 2014 at 12:13 PM
Updated on Apr 20, 2015 at 5:09 PM

Yum! Brands, Inc. (NYSE:YUM) has rallied 2.5% to trade at $71.75, fueled by rumors regarding a potential spinoff of the company's China-based business, according to Trade-Alert. What's more, options volume is exploding -- especially on the call side, where contracts are crossing at 11 times the expected intraday rate.

What's more, short-term strikes are in high demand, as YUM's 30-day at-the-money implied volatility has spiked 12.8% to 17.3%. In fact, eight of the 10 most active strikes expire within the next three weeks.

Digging deeper, eleventh-hour bulls are buying to open the equity's weekly 10/31 72-strike call for a volume-weighted average price (VWAP) of $0.35. With 5,240 contracts exchanged so far, this option is YUM's most active by a healthy margin. Long story short, these traders expect the underlying to be sitting atop breakeven at $72.35 (strike plus VWAP) at tonight's close, when the weekly series expires.

Meanwhile, slightly longer-term bulls are targeting the stock's December 75 call, where 2,773 contracts are on the tape. These buyers anticipate YUM will advance past $75 over the next seven weeks -- a mark that hasn't been toppled on a weekly closing basis since mid-July.

Looking at the charts, Yum! Brands, Inc. (NYSE:YUM) has moved little over the past three months, largely churning in the $66-to-$73 range. Longer term, the shares are down about 5% since the start of the calendar year.


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