Panera Bread Company Article

Popping With Panera And The King
Jocelynn Drake, Option Advisor 06.28.08, 12:25 PM ET

In the hustle and bustle of our lives, who has the time to slow down enough to cook a meal? It's easier to pop by the drive-thru of the closest fast-food restaurant to grab a bite to eat before heading to that next appointment, dance class, or little league game. It's this prevalent lifestyle of Americans that has helped to make many of the players in the fast-food industry strong stock-market performers.
One stock within the group that easily stands above the rest is Burger King Holdings (nyse: BKC - news - people ). The stock has been in a strong uptrend along its 10-week and 20-week moving average since August 2006, gaining nearly 94% along the way. The shares are currently resting on their 20-week trend line as they struggle with short-term resistance in the 29 region.
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Not surprisingly, sentiment toward the stock is relatively optimistic, but it is beginning to show signs of pessimism creeping into the picture. The Schaeffer's put/call open-interest ratio, which compares put open interest to call open interest among options that expire in less than three months, has risen from 0.25 following June options expiration to its current perch of 0.4. This increase in the ratio comes as put open interest has increased at a faster pace than call open interest.
Meanwhile, one stunning pocket of pessimism comes from short-sellers. Almost 6 million BKC shares have been sold short, accounting for a whopping 14.7% of the company's total float. An unwinding of these bearish bets in the face of the stock's uptrend could add more fuel for Burger King's continued ascent. To take advantage of this uptrend, investors should consider the stock's Aug. 25 call.
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Another security that has been in a stellar long-term uptrend is McDonald's (nyse: MCD - news - people ), home of the Big Mac, Egg McMuffin, and a sweet tea that is proving to be a gold mine for the firm as same-store sales remain strong amid a weak overall economy. McDonald's has ramped higher along its 10-month and 20-month trend lines. In fact, MCD has closed only one month below both of these trend lines since May 2003.
Pessimism toward Mickey D's is also slowly edging higher, as the put/call open interest ratio has risen since June option expiration. The ratio has increased from 0.68 to 0.72 as investors add more put positions. Overall, sentiment is optimistic toward this high-flying security, which is to be expected. As the shares bounce off current support levels, an August 57.50 call would enable a trader to lock in a nice profit.
Not everything is rosy within the fast-food sector, however. CKE Restaurants (nyse: CKR - news - people ), parent of the Carl's Jr. and Hardee's chains, announced June 26 its first-quarter net income rose to $16.6 million, or 31 cents per share, on revenue of $466.2 million. Analysts had forecast a profit of 27 cents per share on revenue of $464.5 million.
While the shares jumped on the positive earnings news, they were quickly halted by resistance at their declining 10-month moving average. This trend line has guided CKR shares lower during the past month, keeping them capped. A rejection at this moving average could send the equity back for another test of support at $9, a decline of more than 28% from the stock's current price.
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Meanwhile, hopes are running high for this long-term underperformer. The Schaeffer's put/call open interest ratio for CKR has fallen to 0.7 and is lower than 83% of all those taken during the past 52 weeks. In other words, short-term options players have been more optimistically aligned only 17% of the time during the past 12 months. This combination of lingering optimism on a stock that is technically struggling with resistance has bearish implications. To take advantage of a rejection at CKR's 10-month moving average, traders should focus on the security's September 12.50 put.
Taking a step back from the traditional fast-food fare and looking for something a little different, we find an interesting opportunity in Panera Bread (nasdaq: PNRA - news - people ). The security has recently gained more than 46% after bouncing off support at the 32 level earlier this year. The stock is currently consolidating its gains, moving sideways into support at its ascending 20-week moving average. The shares could use this intermediate-term trend line as a springboard to launch them higher.
Meanwhile, investors are extremely skeptical of Panera's strength. The Schaeffer's put/call open interest ratio rests at 1.37, as put open interest outnumbers calls open interest. This reading is also higher than nearly three-quarters of the reading taken during the past year. Short-sellers have also flocked to this security, accounting for roughly 30% of the company's total float. As more of these bears jump on the outperforming shares' bandwagon, it will help to fuel the stock's rally. An August 45 call on Panera would allow a trader to rake in a profit on strength in the shares.