Why a fast food stock could be Wall Street’s next short squeeze
The Jack in the Box inventory could soon live up to its name.
Growing brief interest in stocks in the West Coast-based fast food chain appears to be preparing the stock for a brief press, Danielle Shay, director of options at Simpler Trading, told CNBC’s Trading Nation on Friday.
“I like Jack in the Box here, but for a short-term option trade,” Shay said.
While the stock isn’t far from its all-time highs, which would normally prevent Shay from buying in, it made an exception due to the unusual activity. According to FactSet, Jack in the Box currently has 9.2% short interest.
“With something like that that has a short interest, it has the potential for short press and profit,” Shay said. “This is why I like to trade shorter term calls on the profit line. That way I can only take advantage of the dynamics of the profit report and the increase in [implied volatility]. “
For investors looking to trade longer-term in this space, Shay suggested McDonald’s stock.
“If you look at a weekly McDonald’s chart, it has been consolidating for a while. I think that consolidation is going to break out on the upside. I’m aiming for $ 240,” she said. “It’s more of a long-term trade so you can sell put credit spreads on a regular basis [or] Buy long calls 90-120 days. “
McDonald’s stock lost less than half of 1% on Friday at $ 213.90.
“Indoor restaurants will take a while,” Shay said. “People will worry that they can leave. They can’t open to full capacity. … For me personally, I’d rather focus on the fast-food chains whose model is already geared specifically towards drive-thru is. “
Limited-service restaurants are now a better choice than their full-service counterparts, agreed Piper Sandler’s Craig Johnson.
“There you start to see that some of the sales in the same store are really positive,” he said in the same interview with Trading Nation, pointing to a table with Chipotle Mexican Grill.
“This is a long-term winner. It’s a name we’ve had on our model portfolio for a while, and we still think it should be bought,” Johnson said, noting the stock was above its 50 and 200 Days moving averages lies in an upward channel and strong performance compared to the S&P 500.
“This stock seems to have even more room to run,” he said. Chipotle finished trading 1% on Friday.
Johnson’s second choice was Chili’s mother Brinker International.
“On a weekly chart looking back a few years, you’ll see that you’ve finally reversed a downward trend from those 14’s highs and are now making new highs,” he said.
Brinker’s performance is also improving compared to the S&P and “confirms to us that something positive is happening here,” said Johnson. The Brinker share closed on Friday by about half, 1% lower.
“It looks like a lot of these restaurants are looking for another leg in really good tech,” said Johnson.
New York City restaurants reopened for indoor use on Friday at 25% capacity.
Disclaimer of liability