Shares of fast-food giant The Wendy’s Company (WEN) have performed about in-line with the stock market over the past year. One trader sees shares bucking that trend with a move higher in the coming weeks.
That’s based on the November $20 calls. With 66 days until expiration, 62,762 contracts traded compared to a prior open interest of 904, for a 39-fold jump in volume on the trade. The buyer of the calls paid $1.63 to get into the trade.
Shares recently traded around $20.50, meaning the options are trading about $0.50 in-the-money. Wendy’s has a 52-week high near $24.50, suggesting about a 20 percent possible upside in shares on a move higher.
Earnings are down about 25 percent in the past year, but revenues are higher, indicating that consumers are still spending at the fast-food chain, but that higher costs are impacting profitability. Nevertheless, as a leader in its sector, the company should hold up well.
Action to take: Shares are worth buying here, and adding to on any further drops in share price on market fears. The stock yields about 2.4 percent here, and has a history of dividend increases.
Traders should consider the November calls. Fast food chains have held up well in the past few years, and may tend to gain market share when the economy isn’t holding up well. Given that this option is already in-the-money, traders can likely look for mid-double-digit gains.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.