This Trader Believes This Fast Food Stock Will Be Short Squeezed Next

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Trader Danielle Shay believes increased short-interest on fast food company Jack in the Box is priming it for a squeeze.

Shay is the director of options at Simpler Trading. “I like Jack in the Box here, but for a short-term options trade,” Shay said.

Jack in the Box has rallied in recent months, creeping up on an all-time high. Shay typically stays away from stocks that have these criteria but is making an exception due to the unusual circumstances. According to FactSet, Jack in the Box currently has 9.2 percent short interest.

“With something like this that has short interest, it does have the potential for a short squeeze and it has earnings coming up,” Shay said. “For that reason, I do like to trade shorter-dated calls in the earnings series. That way, I can take advantage of just the momentum going into the earnings report and the rise in [implied volatility].”

For buy-and-hold investors that are more risk-averse, Shay recommended McDonald's. “If you look at a weekly chart of McDonald’s, it has been consolidating for quite some time. I do believe that the consolidation is going to break out to the upside. I’m targeting $240,” she said. “It’s a little bit more of a long-term trade, so, you could sell put credit spreads on a regular basis [or] buy long calls 90-120 days out.”

“It’s going to take a while for restaurants that depend on indoor dining,” Shay said. “People are going to be concerned about going. They’re not able to open up at full capacity. ... For me personally, I would rather focus on the fast-food chains that their model already is specifically focused on drive-thru.”

The question of whether retail investors rewrote the rules of investing with the GameStop rally will be revealed in the near future with other heavily shorted stocks.

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