California Pizza Kitchen, Inc.’s (NASDAQ: CPKI) trading volume spiked to three times normal volume by noon Wednesday, and shares were up 8% to $18.11. Rumors that the struggling restaurant chain is close to a private equity deal to be acquired caused the activity.
The chain has been on the market since April, when the company hired firm Moelis & Co. to auction off the business. CPKI popped to $22 from $18 after the sale process started.
The stock’s 52-week range is $12.29 to $22.92. However, investors who use 52-week highs as a benchmark for what a company should fetch may want to use caution as that high may be misleading.
The prior high was around $18 going back to the end of 2007. In mid-2007, before the recession, the stock reached an all-time high of $25. A private equity firm might be interested, but for shareholders to expect $25 in a no-growth chain may be naive.
Chasing the stock here is not a good idea considering the run-up in share price and the state of the business. The fundamentals are flat, and some say that is being generous.
Speculating in options on a deleveraged basis is probably the best way to play this, because your downside risk is contained.
The speculative trade is in the CPKI Aug 20 Calls at 45 cents. If a $20 buyout offer comes, some may think a slightly higher bid could follow. If so, option traders could see big gains.
The CPKI Sept 20 Calls cost 75 cents per contract. These are more expensive and less liquid, but they do offer more time.
The cheaper and shorter-term speculative options appear to be the way to go here. If you only speculate with one or two contracts per 100 shares that you might have bought in stock, this becomes a synthetic, lower-risk way to play the potential sale of California Pizza Kitchen.
Follow Jon Ogg on Twitter @jonogg.
The 10-to-1 Options Trading Secret — John Lansing reveals how to break down scientific chart analysis into easy-to-make trades that will have you trading, and profiting, with confidence in no time. Learn how to leverage your profits 10 times larger with a tiny investment. Download his FREE trading guide here.
