Analysis and earnings trade idea for Cheesecake Factory
Ok, now that I have your attention, are you ready to go get that cheesecake? The Cheesecake Factory, $CAKE, makes a lot more than cheesecake. In fact my wife loves their salads and the pizza's are great too. In my house dessert can be 6 chocolate covered walnuts though. So it is that dessert case that gets my attention when I walk through the door.
What catches my attention prior to the earnings report tonight though is the chart of the stock price. Over 2015 it has built a Cup and Handle pattern, with the Handle forming now. This not only reminds me of the coffee I'm gonna have with my cheesecake, but that this stock has upside potential to 66.25 on a move higher out of the pattern.
As it sits in the Handle, the momentum indicators are slightly positive. The RSI is holding in the bullish zone but has pulled back. While the MACD is flat but positive after a pullback as well. The Bollinger Bands®, a measure of volatility, are narrow and turned slightly down, making the total picture neutral for now.
There is support from prior price history at 53.50 and 52.40 followed by 51.50 and 49.75 before 48 and the bottom of the Cup at 47.15. There is no resistance higher above 55.35. Short interest is high at over 12%, so a short covering squeeze is always a potential.
On the options front, the August chain sees large open interest at the 50 Strike on the Put side below. Outside of that there is some size at the 55 and 60 Strikes on the Call side. Implied volatility is low generally at about 25%, similar to the implied volatility in September, and the historical volatility. The August chain suggest that options traders expect a $3.15 cent move by Expiry on the 21st, and historically the stock has moved only 3.10% over the last 6 earnings reports or $1.70 at today's price.
Cheesecake Factory, $CAKE
Trade Idea 1: Sell the August 50 Put for 30 cents.
Trade Idea 2: Buy the August 55 Call for $1.40.
Trade Idea 3: Buy the August/September 55 Call Calendar for $0.40.
Trade Idea 4: Buy the August/September 55 Call Calendar and sell the July 50 Put for $0.10.
Trade Idea 5: Sell the August 55 Straddle for a $3.00 credit.
#1 is a straight trade banking on the large open interest to hold at 50, with a possible entry there. #2 a defined risk trade for the upside break of the Cup and Handle. #3 works for the longer term upside looking for 55 to stall the price at August Expiry. #4, a Call Calendar Risk Reversal, adds leverage to #3. #5 is profitable on a close between 52 and 58 at August Expiry and gives a lot of time to maneuver out of the trade as well. I like #5 or #4.
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