Investing

Why Options Traders May Be Targeting America's Diner Denny's

Joshua Enomoto

Published: June 20, 2023 9:55 am

Last Updated: June 20, 2023 11:25 am

After a three-day Juneteenth weekend that saw U.S. travelers take to the roads in record numbers, shares of self-labeled ‘America’s Diner’ Denny’s (US:DENN) are moving up more than 7% in Tuesday’s premarket trading. Already up 25% year to date, the desire to get out of the house — following a collective bout of cabin fever due to the pandemic — may be helping.

With those gains, rumblings for DENN stock in the derivatives market have materialized, lending a possible opportunity for speculators.

As COVID-19 restrictions began fading in earnest globally last year, the phenomenon known as “revenge travel” quickly dominated the cultural lexicon. Throughout the worst of the public health crisis, consumers had little choice but to be sequestered from the rest of society as multiple jurisdictions clamped down on non-essential activities. Subsequently, the forced denial of personal mobility catalyzed pent-up demand for travel.

Enticingly for DENN stock and other downwind beneficiaries, consumer behavioral data indicates that revenge travel continues to motivate people this year – especially among those in the Generation Z demographic. Therefore, it’s possible that as the occupier of the lower rungs of the trade-down effect — that is, the provider of cheaper alternatives — Denny’s may rise higher, especially during the summer travel season.

That’s quite a turnaround from three years ago, when S&P Global Market Intelligence put Denny’s on its list of the largest publicly traded U.S. restaurant companies most likely to default.

Placing Bets

Notably, speculators seem to have placed their bets. Following the close of the June 14 session, DENN stock surfaced among the highlights on Fintel’s dashboard of unusual stock options volume.

Specifically, call volume hit 1,479 contracts against an open interest reading of 454. On the other end of the scale, put volume only mustered 73 contracts against open interest of 592. For both the call and put volumes, the Wednesday metrics well exceeded their average volume levels of 8 and 6 contracts, respectively.

Interestingly, though options flow data are limited for DENN stock, the printed transactions this year have all pointed toward a positive trajectory. As well, current options sentiment, defined here as a put/call ratio sitting at 0.53, indicates wide optimism.

It’s the Economy

To be fair, a risk factor for Denny’s centers on the true viability of the broader economy. Though the latest total nonfarm payroll employment of 339,000 exceeded expectations, the pace of average hourly earnings growth declined. Also, the unemployment rate increased by 0.3 percentage point to 3.7% in May, reflecting rising obstacles.

In addition, Americans have been racking up debt, particularly those in their 30s who have been doing so at record rates. Should layoffs continue to materialize amid tough circumstances for particular industries, DENN stock may court troubles down the line.

At the moment, though, U.S. consumer spending is strong, particularly for experiential purchases. Therefore, an air pocket within the economy may keep DENN stock afloat in the interim.

This article originally appeared on Fintel