07-26-2010—Traders have been gravitating toward call options on Burger King Holdings Inc. (BKC) in recent sessions.
During the past five days, speculators on the International Securities Exchange bought to open 8,337 calls on BKC, compared to 180 puts. The equity's five-day call-to-put volume ratio of 46.32 underscores a distinct bias toward bullish bets over bearish.
In fact, BKC now sports an inflated 10-day ISE call-to-put volume ratio of 50.94, as nearly 51 times more calls than puts have been bought to open during the past two weeks. This ratio ranks higher than 91.4 percent of other such readings taken within the previous year, revealing that traders on this exchange have rarely purchased calls over puts at a faster clip.
In the front-month series, the August $20 strike is far and away the site of peak call open interest. This out-of-the-money call has 25,728 contracts in residence. By contrast, the second-most popular call is the August $17.50 strike, with a comparatively meager accumulation of 3,790 contracts in open interest.
Meanwhile, puts are thin on the ground in the front-month series. BKC's out-of-the-money August $16 strike is home to peak put open interest of just 2,131 contracts. This configuration suggests that few options traders are expecting a short-term decline from BKC.
SHORT INTEREST SLUMPS
Elsewhere on Wall Street, short sellers have been hitting the exits. Short interest declined by nearly 18 percent during the past month, and contracted by 6.6 percent during the most recent reporting period.
However, these pessimistic positions still account for nearly 6 percent of the security's float, or 3.7 times BKC's average daily trading volume.
TECHNICAL POINTS
From a technical analysis perspective, BKC has fallen on hard times lately, suggesting that short sellers were likely taking profits on their winning bets, rather than rushing to cover.
The stock has shed roughly 8 percent of its value year-to-date, and the shares have consistently underperformed the broader S&P 500 Index on a relative-strength basis in recent months.
The equity's weakness has been highlighted by resistance from its 10-week moving average, which has not been surmounted on a weekly closing basis since late April. This trendline is currently located near $18, and could easily thwart any short-term rally attempts by BKC. See the figure, a weekly chart of BKC since April with 10-week moving average, courtesy of Thomson Reuters.
However, from a longer-term perspective, BKC is trading comfortably north of support in the $16 to $17 neighborhood. This chart region has provided a floor for the shares since May 2009 and could continue to stem the stock's decline.
With BKC pinned between support and resistance on the charts, the stock could frustrate bullish and bearish traders during the short term.
The fast-food chain is not slated to report its quarterly earnings until after August-dated options expire, so BKC could be a prime candidate for short-term strategies that capitalize on stagnant price action, such as credit spreads or iron condors.