Jack in the Box’s stock could soon live up to its name.
The rise in short interest in shares in the West Coast-based fast-food chain appears to be preparing the stock for a squeeze, Danielle Shay, director of options at Simpler Trading, told CNBC’s “Trading Nation” on Friday .
“I like Jack in the Box here, but for short-term options trading,” said Shay.
Although the stock is not far from its historic high, which would normally prevent Shay from buying, she made an exception due to the unusual activity. Jack in the Box currently has 9.2% interest sold, according to FactSet.
“With something like that that has short interest, it has the potential for a short tightening and it has profits coming in,” said Shay. “For this reason, I like to trade calls for shorter dates in the earnings series. That way, I can only take advantage of the momentum that comes into the earnings report and the increase in [implied volatility]. “
For investors looking for long-term trading in space, Shay suggested McDonald’s shares.
“If you look at McDonald’s weekly chart, it has been consolidating for some time. I really believe that this consolidation will burst on the positive side. My target is $ 240, ”she said. “It’s a little bit of a long-term trade, so you could sell placement credit spreads regularly [or] buy long calls 90-120 days in advance. “
McDonald’s shares ended up trading below less than half of 1% to $ 213.90 on Friday.
“It will take a while for restaurants that rely on indoor dining,” said Shay. “People will be worried about going. They can’t open at full capacity. … For me personally, I prefer to focus on fast-food chains that their model is already focused on specifically drive-thru.”
Limited-service restaurants are a better bet than their full-service counterparts at the moment, agrees Craig Johnson of Piper Sandler.
“That’s when you start to see some of the same store sales comparisons really showing up,” he said in the same interview with “Trading Nation”, pointing to a chart at Chipotle Mexican Grill.
“This has been a long-term winner. It’s a name we’ve had in our model portfolio for some time and we still think it should be bought,” said Johnson, noting that the stock is above the 50 and 200 moving average days, in a rising channel and showing strong performance in relation to the S&P 500.
“It seems that this action still has more space to run,” he said. Chipotle ended trading with a 1% drop on Friday.
Johnson’s second choice was the action of Brinker International, Chili’s parent company.
“On a weekly chart that looks back a few years, you will see that it has finally reversed the downward trend from the highs of 14 and now we are reaching new highs,” he said.
Brinker’s performance is also strengthening in relation to S&P, “providing confirmation to us that something positive is happening here,” said Johnson. Brinker’s stock closed about half of 1% down on Friday.
“It looks like a lot of these restaurants are looking in great technical shape for another taller leg,” said Johnson.
New York restaurants reopened for indoor dining at 25% capacity on Friday.
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