Why So Many Traders Seem Bearish on the Rally in Yum! Brands (YUM)
Yum! Brands (NYSE: YUM), the parent company of KFC, A&W restaurants, Pizza Hut, Long John Silver’s and Taco Bell reported strong earnings last night. The fast food conglomerate reported earnings-per-share growth of 23%. Worldwide profits leaped 13% with 37% growth coming from China. The stock responded positively, rallying to $43.18, up 3.6% on the day. Even though this may seem like a reason to buy the stock for the long term, for some traders it’s actually a signal to do just the opposite.
There are many ways people trade stocks, driven by varying logic, risk tolerance levels, personalities and time horizons. While Yum looks strong, some traders may be using this rally to take profits, in fact, in the options pits today, we saw quite a bit of action, much of it bearish.
If you look deeper into the report, YUM noted that same-store sales actually declined 1% including an increase of 5% at Pizza Hut and declines of 2% at Taco Bell and 4% at KFC.
Notable Bearish Options Trades in YUM
- A seller of the Apr 40 calls
- A buyer of the Apr10 40 Puts
- A Seller of the April 42-40 Risk Reversal, where the trader was selling calls and buying puts, which is a way to synthetically short the stock.
Everyone has their own unique opinions about the stock market, and for some traders, selling into strength is their strategy, others may tend to buy when a stock is rallying. Always approach news with caution and be sure to read the fine print; things are not always what they seem.
Bullish or Bearish on YUM?
Do you have a strong opinion one way or the other on what the future holds for Yum! Brands? Does the logic I’m outlining here make sense? Please feel free to let me know in the comments.
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Photo Credit: Scott Ableman
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