Buffalo Wild Wings’ (NASDAQ:BWLD) domination of the sports bar scene has been readily apparent to not only its patrons, but also anyone keeping tabs on its stock price. As Serge Berger mentioned on Monday, BWLD has followed up on its 54% rise in 2011 by rising 31% so far this year.
Though a stock may be able to outperform the market in short-term bursts on random speculation, it takes real earnings growth to exhibit relative strength quarter after quarter. One factor likely to boost the current quarter’s earnings is March Madness.
While the outcome of the NCAA tournament remains highly contested, one bet worth making is that chicken wing consumption should see a parabolic rise over the month of March. The day-to-day intrigue of the tournament should continue to fuel sports fans’ appetite for chicken wings and thus increased profits for BWLD.
March Madness aside, the price chart of BWLD looks quite compelling for the bulls. The only missing puzzle piece for structuring a bullish option position is the lack of liquidity. The absence of any major trading in the BWLD options pits is leaving the bid-ask spreads wider than many would like.
For example, the June 90 calls have a bid of $6.60 and an ask of $6.90. The wider spreads mean traders electing to use options to place their bets employ smaller contract sizes and user limit orders.
One play worth considering for option traders looking for BWLD to continue its run to the century mark is a June 90-100 bull call spread. The spread can be entered by buying to open the June 90 call for around $6.10 and selling to open the June 100 call for around 2.30. Currently the spread can be entered at a net debit around $3.80. (The trade is at a net debit because the closer-to-the-money call is purchased while the further-from-the-money call is sold).
This spread trading idea limits the risk to $380 while offering a potential reward of up to $620 (the difference in strike prices less the premium paid). The risk will incurred if the stock is still trading below $90 at June expiration while the max reward will be captured if the stock rises above $100 by June expiration. The expiration break-even price would come out to $93.80, or the long call strike plus the overall debit paid.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
