Trader Gets Short TXRH

Texas Roadhouse Inc (TXRH, $25.31), owns 320 restaurants with an additional 72 that are franchised and or licensed. TXRH has a 52-week range between $15.72-$25.99. On the year the stock is up 48.42% and over a 12-month period TXRH is up 40.16%.

The company has grown 46% within the last six months, which is surprising considering they are in such a competitive industry. Although Texas Roadhouse has had some quick success, it is unlikely that they will be able to sustain this amount of expansion in the coming years. With food inflation and beef prices on the rise it is possible that the company will have to increase the price of menu items, which could drive away potential customers.

Texas Roadhouse has announced that they are planning to continue restaurant expansion within the year but have noticed productivity within the new stores is lower than expected. Another problem that TRXH might encounter is stiff competition from the company Darden Restaurants (Olive Garden and Red Lobster). While these two companies look to continue to expand stores and offer promotional based offers, Texas Roadhouse will have to continue to think of new ways to attract customers in order to prevail. possibly expanding into the Middle East and Canada.

Unusual Option Activity:

We define unusual option activity as large block trades that represent a large percentage of daily option volume.  Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. Order flow can however at times be deceiving.  Remember that a large number of participants in the equity options market are hedgers.

The “Institutional Trade”:

Yesterday a trader bought 2,000 TXRH Aug 25 Puts for $.85

Their Risk:      $85 per 1 lot
Their Reward: $2415 per 1 lot
Their Breakeven: $24.15
Cash Outlay:   $170,000

Greeks of this Trade:

Delta:     Short
Gamma: Long
Theta:    Short
Vega:     Long

(Full Disclosure: I am long the TXRH Aug 25 puts for $.80)