Wendy's Calls Fly Off Shelves After Upbeat Sales Estimates

Wendy's calls have been popular the past few weeks

by Patrick Martin

Published on Oct 11, 2019 at 2:49 PM

The shares of Wendy's Company (NASDAQ:WEN) are in focus today, up 4% to trade at $20.69. The fast food chain is buzzing after reporting preliminary same-store sales of 4.4%, topping the estimated 2.5% figure. The encouraging numbers, combined with the company's 2020 rollout of a breakfast menu to compete with McDonald's (MCD), have options traders buzzing today.

With around one hour left in trading today, more than 35,000 calls have changed hands, 38 times the average intraday amount and volume already three times its previous annual high from Aug. 6. Leading the charge is the October 21 call, where new positions are being opened. It appears options traders are banking on a sustained surge from WEN by the time the options expire next Friday, Oct. 18. 

The appetite for calls is nothing new in recent weeks, despite limited absolute volume. In the last 10 days, 4,405 calls were bought to open at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to just 280 puts. Plus, this ratio ranks in the 96th percentile of its annual range, indicating calls have been bought to open relative to puts at a quicker-than-usual clip in the last two weeks.

On the charts, Wendy's stock is on the verge of its highest close since a Sept. 9 bear gap. Just days prior to that sharp pullback, WEN had nabbed a record high of $22.84, and is up 33% year-to-date. Amidst the recent consolidation, the shares' 100-day moving average emerged as solid support.

Daily Stock Chart WEN

While call buyers appear optimistic, there's pessimism elsewhere to be unwound. Of the 17 brokerages covering WEN, 11 rate it a tepid "hold," while the consensus 12-month price target is a slim 3.7% premium to its current perch. Plus, a healthy 6% of the equity's total available float is controlled by short sellers, which equates to a four days' worth of pent-up buying power, at its average pace of trading. 

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