Unusual Options Activity: Shake Shack (SHACK)

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  • Bet on moderate decline by January.

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  • Shares of Shake Shack (SHAK) have been volatile over the years. At least one trader is betting on a big move in shares again—with a decline in mind.

    On Tuesday, over 934 contracts traded on the January 2020 $65.00 put options. With shares trading around $74.50, that’s a bet that shares will decline over 13 percent between now and January.

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    Shake Shack currently operates 208 restaurants which it calls Shacks. The company sells burgers, hot dogs, fries, shakes, and related products. Share trade at a whopping 158 times earnings, and a still-outrageous 100 times forward earnings. The company has seen growing revenue growth, but a drop in earnings growth, indicating that its costs are rising.

    Action to take: With only 208 locations and a market cap of $2.75 billion, each Shack has a valuation over $13.2 million dollars—far higher than fast-food burger chains by multiples, and even by other high-end burger chains that have risen in recent years.

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  • With a valuation like that, investors may want to get in on this trade. The option can profit by a far larger percentage drop in shares, and shares can fall for valuation concerns as well as a drop in the overall market.