Restaurant Brands Stock Prime for Bearish Options Play

QSR stock has been trending lower under several layers of technical resistance

May 1, 2018 at 10:24 AM
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The technical picture for Burger King owner Restaurant Brands International Inc (NYSE:QSR) has been deteriorating in recent months. The shares briefly popped after earnings last week, but this rare upside move was quickly thwarted by a trendline connecting lower highs since October. In fact, QSR topped out near $58, double the 2016 low, and has moved back below the $56 mark, site of the June and February lows.

On top of this, there's huge call open interest at the front-month May 55 call, which is only part of an unexplainable bullish bias seen from options traders. For instance, QSR's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 3.73 -- just 1 percentage point from an annual high. The stock could continue to struggle as the hedges related to these bets unwind.

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Analysts seem overly bullish, too. Of the 13 analysts in coverage, nine say the stock is worth buying, with zero "sell" recommendations on the books. Maybe more revealing is the average 12-month price target of $68.13, which is a nearly 26% premium to the equity's current perch. Downgrades and/or price-target cuts could come through and apply more pressure.

It's also attractive that the stock's Schaeffer's Volatility Index (SVI) of 23% is just 4 percentage point from a 12-month low, showing low volatility expectations for short-term options.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this QSR commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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