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Options Feeding Frenzy Ensues At The Cheesecake Factory

Posted on the 15 February 2012 by Phil's Stock World @philstockworld

Today’s tickers: CAKE, LIZ & K

CAKE - Cheesecake Factory, Inc. – Traders are loading up on Cheesecake Factory call and put options today, perhaps ahead of the restaurant operator’s fourth-quarter earnings report next Tuesday. Shares in CAKE rose 1.6% to stand at $31.51 as of 12:55 p.m. in New York. March expiry calls garnered much of the attention from traders, with appetite for CAKE calls outpacing that of puts by around 1.4 to 1. The Mar. $34 strike calls are the most active as some 2,780 contracts changed hands against open interest of just 20 positions. It looks like the majority of the calls were purchased by one investor at a premium of $0.25 each. The strategist may profit at expiration in the event that Cheesecake Factory’s shares rally another 8.7% to surpass the effective breakeven point and new 52-week high of $34.25. The same investor may also be responsible for the purchase of call options at the Mar. $33 strike, where roughly 750 contracts traded for an average premium of $0.54 apiece. Time stamps for trades in the Mar. $33 and $34 strike calls exactly match those of transactions in the Mar. $29 strike puts. Nearly 950 of the $29 strike put options were purchased for an average premium of $0.55. The strategist snapping up both call and put options on the stock is prepared to see CAKE’s shares make big moves in either direction. The rise in demand for Cheesecake options has the overall reading of options implied volatility 31.5% on the day at 42.3% in early-afternoon trade.

LIZ - Liz Claiborne, Inc. – Shares in the owner of Juicy Couture, Kate Spade and other retail-based premium brands rallied to a fresh 52-week high of $10.38 today, extending year-to-date gains to 23.4%. A spate of call buying on Liz Claiborne this morning may mean some options players are positioning for the shares to trade substantially higher by July expiration. Bullish trades on the name may be a vote of confidence in the Company’s moves to turn-around struggling brands and reverse slipping sales figures. Juicy Couture, Liz Claiborne’s largest unit by sales, posted a 7.2% YOY decline in sales in the third quarter. Earlier in the week, LIZ announced it has hired a new co-president and COO to get Juicy Couture back on track. LIZ is scheduled to report fourth-quarter earnings ahead of the opening bell on February 29. Options traders populating the stock concentrated their efforts in the July expiry. One strategist snapped up 1,000 calls at the $11 strike for an average premium of $1.05 apiece. Profits may be available at expiration in the event that shares in LIZ rally another 16.1% to surpass the average breakeven price of $12.05. Meanwhile, call volume is heaviest up at the July $13 strike, where more than 6,100 contracts changed hands against zero open positions. The calls traded at an average premium of $0.53 each, with around 1,000 trading on the ask and the remainder hitting the middle of the market. Traders buying the contracts for around $0.53 a-pop, stand prepared to profit at expiration day should shares in Liz Claiborne surge 30.0% to exceed $13.53. Finally, the higher July $14 strike saw opening trades, with around 580 calls trading against zero open positions. It looks like most of the calls were purchased at $0.35 each.

K - Kellogg Co. – The maker of Frosted Flakes and Froot Loops added Proctor & Gamble’s Pringles unit to its hoard of household-name brands today, announcing it will pay $2.7 billion for the provider of stackable potato chips. Shares in Kellogg moved up 5.4% to $53.00 on the news. Options on Kellogg are far more active than usual, with more than 20,500 contracts changing hands on the stock by 12:30 p.m. in New York. Front-month calls attracted the heaviest volume, as more than 8,350 positions were initiated at the Feb. $52.5 strike. The now in-the-money calls appear to have been mostly purchased for an average premium of $0.43 each. Investors long the calls may profit in the event that Kellogg’s shares trade above the average breakeven price of $52.93 at expiration this week. Traders risk losing the premium paid for the call options should shares cool a bit and settle below $52.50 by expiration.

Caitlin Duffy
Equity Options Analyst

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Options Feeding Frenzy Ensues At The Cheesecake Factory
Options Feeding Frenzy Ensues At The Cheesecake Factory
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