Options Traders Score Tasty Victory With YUM Stock

YUM was flashing a "buy" signal at the time of the trade

by Patrick Martin

Published on Mar 21, 2019 at 2:54 PM

Subscribers to Schaeffer's Weekend Trader Series service recently doubled their money with the Yum! Brands, Inc. (NYSE:YUM) April 87.50 call. Here's a quick look at why we expected a big upside move from the restaurant stock, and how the profitable options trade unfolded.

When we entered the position on Monday, Dec. 10, a couple of technical floors were in place. While YUM had shown resiliency amid the broad-market sell-off, all pullbacks were contained by its 80-day moving average. Plus, despite retreating from its then record high of $93.23 on Dec. 3, the equity had found support at its +10% year-to-date gain.

Analyst sentiment toward YUM was lukewarm at best. Of the 14 brokerages covering the stock, eight maintained a "hold" rating. This left the door open for upgrades, which could draw buyers to the table.

YUM options were attractively priced at that moment, too. The stock's Schaeffer's Volatility Index (SVI) of 21% sat in the 23rd annual percentile, meaning short-term options were pricing in lower-than-usual volatility expectations. Plus, our internal quantitative data showed the combination of low implied volatilities and a high stock price had bullish implications for YUM shares in the past.

In the wake of our recommendation, YUM carved out an impressive channel of higher highs, with a January pullback neatly contained by that 80-day trendline. This was followed by a steady stream of price-target hikes. In fact, the security hit $100.93 on Friday, allowing us to close our position and lock in a 101% profit.

Trade PM YUM Stock

From Schaeffer's Pro Traders
Trade Weekly Options Like a Pro

Direct from our Schaeffer's traders, your FREE guide to profiting with weeklies!


 
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


Cannabis Up-and-Comer Focuses on Streamlined Growth
This early-staged CBD stock may be setting up investors for big gains.
Drug Stock Doubles on Trial Update
ETON is another name making a big move in the healthcare space
Wall Street Dishes Out "Sell" Ratings on Healthcare Stocks
Multiple bear notes have hit the healthcare sector today
Cannabis Up-and-Comer Focuses on Streamlined Growth
This early-staged CBD stock may be setting up investors for big gains.