The security's 40-day looks like solid support for TXRH right now
Restaurant chain Texas Roadhouse Inc (NASDAQ:TXRH) has enjoyed an impressive rally from its mid-March lows, despite the coronavirus pandemic’s weight on the sector. The stock pulled back sharply from its all-time high at the beginning of the week, but its 40-day moving average stepped up as support. This moving average is important; it connects a trendline from those March lows, and has been a key area for both bull and bearish trends. That being said, now looks like an opportune time to bet on TXRH’s next leg higher.
It’s certainly a good time for contrarians to weigh in, considering the equity’s Schaeffer’s put/call open interest ratio (SOIR) of 1.88, which sits in the 97th percentile of its annual range. This means short-term options traders have rarely been more put-biased in the past 12 months. Furthermore, TXRH’s 10-day put/call volume ratio of 2.87 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 84% of readings from the past year.
Although shorts are in covering mode, short interest still makes up 7.1% of the security’s available float. It would take over five days to buy back those bearish bets, at TXRH’s average pace of trading. Meanwhile, a round of analyst upgrades could act as a tailwind as well. Of the 18 brokerages in coverage, 15 sport a lukewarm “hold” rating on the stock.
The good news for options traders is that the stock’s Schaeffer’s Volatility Index (SVI) of 49% sits higher than just 15% of all other annual readings, meaning options traders are pricing in relatively low volatility expectations at the moment. Plus, Texas Roadhouse stock’s Schaeffer’s Volatility Scorecard (SVS) ranks at a relatively high 73 out of 100, meaning the equity has tended to exceed these expectations.
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