Unusual Options Activity: Papa John’s International (PZZA)

Shares of pizza chain Papa John’s International (PZZA) are down 33% over the past year. One trader is betting on a further decline into the autumn.

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  • That’s based on the October $57.50 puts. With 144 days until expiration, 21,310 contracts traded compared to a prior open interest of 111, for a 192-fold rise in volume on the trade. The buyer of the puts paid $11.12 to make the bearish bet.

    Papa John’s shares recently traded for about $47.50, meaning the puts are about $10.00 in-the-money. Shares are trading close to their 52-week low of $46.81.

    Operationally, high costs and a competitive dining environment have eaten into profitability. Revenue dropped 3% in the past year, and overall earnings are down about 35%.

    With consumers starting to cut back on dining-related spending, some further pressure on the stock is likely in the months ahead.

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  • Papa John’s shares now trade for about 20 times earnings, a slight discount to the overall market.

    Action to take: Investors should avoid shares for now. While getting oversold in the short-term, the downtrend is clear and doesn’t show a sign of a long-term bottom or even turnaround at this time.

    For traders, the October $57.50 puts could see mid-double-digit returns in the months ahead. More aggressive traders could also look for a strike price closer to the current price of the stock.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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