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Fast Food Firm Sees Options Upside on Upgrades

Yum Brands is attracting some upside option activity after seeing two upgrades in as many days.

The casual-dining company closed yesterday up 0.77 percent on the day to $36.88 and rose another 0.33 percent in after-hours trading, following a new 52-week high of $36.99 yesterday. The stock has been trading sideways for nearly a year but could be poised to finally break out of its range, which has been mostly between $32.50 and $36.50 since April 2009.

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  • OptionMonster's tracking systemsshowed that traders were focused on the April 38 strike, turning over nearly 11,000 calls against open interest of 1,114 contracts. Many of these calls—which had averaged a grand total of 48 per day for the last month—were bought for $0.45 to $0.60. Overall calls in the name outnumbered total puts by about 4 to 1.

    Yesterday Credit Suisse reiterated its "outperform" rating for Yum Brands and raised its price target to $44 from $41, while UBS upgraded the stock Tuesday to "buy" from "neutral" and lifted its target to $44 from $38. The moves on the company, which has extensive reach in Asia, followed strong international sales numbers reported by McDonald's earlier in the week.

    For the calls purchased yesterday to turn a profit, the shares need to gain roughly 5 percent by the time the options expire on April 16. The company is scheduled to release its next earnings report two days before, on April 14.

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    Yum Brands Competes With:

    Burger King

    McDonald's

    Wendy's/Arby's

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    Disclosure:

    Najarian owns YUM calls.

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    Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.

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    Disclaimer