Pre-Earnings Options Bulls Blitz Yum! Brands, Inc. (YUM)

Yum! Brands, Inc. (NYSE:YUM) is slated to report earnings after tomorrow's close

Oct 4, 2016 at 12:29 PM
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Call volume is accelerated on Yum! Brands, Inc. (NYSE:YUM), as the operator of fast-food chains KFC, Pizza Hut, and Taco Bell prepares to unveil its third-quarter earnings report tomorrow night. By the numbers, around 5,400 call options have changed hands on YUM stock so far -- two times the average intraday pace -- compared to fewer than 2,350 put options.

Drilling down, the stock's November 97.50 call has seen the most action, and it looks like options traders are purchasing new positions here. By doing so, they expect YUM to break out above $97.50 -- and into record-high territory -- by back-month options expiration at the close on Friday, Nov. 18.

Widening the sentiment scope reveals a growing affinity for long calls relative to puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), YUM's 10-day call/put volume ratio has jumped to 1.91 from 0.65 over the past two weeks. What's more, the current ratio ranks higher than 82% of all comparable readings taken in the past year.

Echoing this call-heavy backdrop is YUM's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.50. What this means is that near-the-money call open interest doubles put open interest among options slated to expire in the next three months.

This optimism among options traders isn't surprising, considering YUM has surged more than 25% year-to-date -- and based on its present perch at $91.48, the stock is within a chip-shot of taking out its Sept. 2 52-week peak at $91.99. Nevertheless, there's plenty of skepticism to be found outside of the options arena.

For starters, short interest jumped 6.6% in the two most recent reporting periods, and these bearish bets are now docked at their highest perch since mid-July. Plus, 11 out of 20 analysts maintain a "hold" or "sell" rating, while the average 12-month price target of $91.70 represents expected upside of just 0.5% to current levels. Should Yum! Brands, Inc. (NYSE:YUM) turn in another well-received earnings report, a capitulation from short sellers and/or a round of bullish brokerage notes could create tailwinds for the shares.

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