Shake Shack Stock Pullback Locks in Big Win for Put Traders

Short-term options premiums on SHAK looked relatively cheap upon recommendation

by Emma Duncan

Published on Oct 17, 2019 at 12:20 PM

Subscribers to Schaeffer's Players service just scored a nice profit on the Shake Shack Inc (NYSE:SHAK) October 100-strike put. Below, we'll explain why we expected a big downside move from SHAK shares, and how the winning trade unfolded in two partial closes.

At the time of our initial recommendation on Wednesday, Sept. 25, SHAK was beginning its descent on the charts. The stock was eyeing its third-straight loss, breaking down from a bearish rising wedge pattern, and was just off a double top pattern at the beginning and end of September at $105 -- or five times the stock's initial public offering (IPO) price.The falling 10-day moving average was also striking down on the shares, flattening any potential breakout attempts. All of the above, combined with a failure at the $3 billion market cap and century level, made SHAK the perfect bet for put buyers.

Diving deeper, short-term options premiums on Shake Shack stock looked relatively cheap, based on the equity's Schaeffer’s Volatility Index (SVI) that ranked in the low 18th percentile of its annual range. Lastly, the shares had shown a tendency to make big moves in the past year, too, as the equity's Schaeffer's Volatility Scorecard (SVS) came in at 73 (out of 100).

Following our recommendation, SHAK closed lower in five of the following seven trading days and suffered an intraday low of $91.02 on Thursday, Oct. 3, which signaled us to make a partial, 50% closeout. SHAK saw a volatile run in the coming days, but on this past Tuesday, Oct. 15, was steadily below the formerly supportive $92 level. At this time we initiated our close of the final 50% of the position, allowing subscribers to lock in an overall profit of 119% in just three weeks on our recommended October 100-strike put.

 SHAK with Entry and Exit Dates and 10MA

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