Shares of Brinker International (EAT) have performed strongly thus far in 2013 and look poised to continue their run based on recently activity we’ve seen in the options market.  Up 28 percent year-to-date and trading in a 52-week range of $28.11- $44.28, EAT shares now slightly off their high of the year. 

Following a pre-market earnings call on August 2, when the company issued higher than expected EPS guidance for fiscal year 2014, shares rallied to an all-time high.  EAT shares are also up 11 out of the past 16 sessions, bouncing hard of their recent low of $39.20 on September 6.

COMPANY PROFILE

Brinker International is a multinational hospitality industry company based in Dallas, Texas, which owns and operates the popular Chili’s Grill and Bar Franchise and Maggiano’s Little Italy restaurant chain.  By the numbers, the company oversees the operations in roughly 1,600 total restaurants.  With a prominent presence inside malls and shopping centers, these restaurants should see a sales boost this holiday season from hungry shoppers. 

While there has been much press around the U.S. consumer’s shift in spending to durables such as home and automobiles, Chili’s is widely popular with a younger and lower-income demographic not yet part of this trend.  Both Chili’s and the more upscale Maggiano’s are seen as a value-play by budget conscious consumers as well, who are potentially saving money for that home purchase.

MARKET ACTION

In last Friday’s session, shares dropped sharply in the first part of the session and hit their intraday low just before 11:30 am Eastern, but rallied nearly all the way back in the afternoon on lighter-than-usual volume.  The options market, however, was another story. 

We saw unusual option activity in the form of EAT Jan 2014 34 Strike Put Sellers (8.2 times usual volume).  Saw a large block order that usually comes from ‘paper,’ meaning a hedge fund, mutual fund, or large bank.  These entities have access to information unavailable to most traders and investors, such as large teams of quantitative analysts to back test strategies.

THE TRADE

Buy the EAT Jan 2014 35 Calls for $5.70

Risk: $570 Per 1 Lot

Reward: Theoretically Unlimited

Break-even: $40.70

GREEKS OF THIS TRADE

Delta: Long

Gamma: Long

Theta: Short

Vega: Long