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Options Volume Balloons on Restaurant Chain

David Russell|writer, OptionMonster
Wednesday, 26 May 2010 | 4:00 PM ET

Cheesecake Factory has been plunging since reversing lower a month ago, and one bear thinks it has further to fall.

OptionMonster's tracking systems detected the purchase of more than 5,000 October 20 puts on the restaurant chain for $0.95 to $1 today. Volume was more than five times open interest in the strike.

The stock is up 1.14 percent to $25.69 in afternoon trading but is down 14 percent since April 27, when it failed to hold early gains. It gapped lower the next day along with other restaurant companies and has been trending lower since.

The downside has occurred against a backdrop of weakness in the consumer-discretionary space and worries about European sovereign debt — even though the company reported better-than-expected results and issued bullish guidance on April 22.

Chart watchers may see evidence of a bearish trend because the stock has been making lower highs and lower lows. It also rolled over after hitting resistance at its 50-day moving average earlier in the month.

The shares must fall more than 26 percent by expiration for the puts to turn a profit.

Overall options volume in the name was more than six times greater than average, with puts accounting for a bearish 85 percent of the activity.

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Disclosures:

Russell does not hold shares in Cheesecake Factory.

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David Russell is a reporter and writer for OptionMonster.

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