Time to Buy Calls on This Restaurant Outperformer

The 10-month moving average has acted as support for DRI

Jul 9, 2019 at 11:05 AM
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Olive Garden parent Darden Restaurants, Inc. (NYSE:DRI) has been a long-term winner on the charts, and is already up 24% year-to-date. Although the stock suffered an initial post-earnings dip in late June, the stock quickly recovered with help from the rising 10-month moving average. The equity then broke out above a trendline connecting lower highs since mid-May, which went on to act as support for the shares during a late-June pullback. This said, now looks to be the perfect time for bulls to bet on DRI.

WKEND DRI Chart YOY

Despite the stock’s outperformance, Wall Street remains wary of DRI, as the 7.07 million shares sold short account for 5.7% of the stock’s float. With short interest up 13% since mid-January while the stock has climbed more than 15%, these bears are in a losing battle. Short interest fell 1.8% in the last reporting period, and more tailwinds could be ahead if these bears keep throwing in the towel.

Lastly, Darden has a Schaeffer’s Volatility Index (SVI) of 18%, which ranks in the 3rd annual percentile. This shows relatively low volatility expectations priced into near-term contracts.

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