Is Jack in the Box the next short squeeze target? This options pro thinks so

The epic short-covering fiasco that lifted shares of GameStop Corp. (NYSE: GME) appears to have come to an end for the time being and investors and traders are looking for the next stock to go through a wild wide to the upside. One options pro thinks this could happen to fast-food restaurant chain Jack in the Box Inc. (NASDAQ: JACK).

Short squeeze after earnings?

Jack in the Box is scheduled to report first quarter results on Feb. 17 after market close and a strong report could set the stage for an outsized rally. Jack in the Box’s short interest stands at more than 9% and shares are not far removed from the all-time high of $104.39.

An earnings beat coupled with a notable short interest has the “potential for a short squeeze” play, Danielle Shay, director of options at Simpler Trading said on CNBC’s “Trading Nation.”

Shay said she recommends investors take advantage of the potential move through options. Specifically, investors should trade shorter-dated calls to take advantage of the “momentum going into the earnings report” along with a rise in implied volatility.

“I like Jack in the Box here,” but for a short-term options trade, Shay said.

Need a refresher on what is a short squeeze? Check out this Invezz.com guide.

The safer restaurant play: McDonald’s, Chipotle

Trading options amid expectations of a short squeeze that may or may not transpire is a riskier trade for most investors. Instead, Shay said she likes shares of Mcdonald’s Corp (NYSE: MCD) as the chart’s consolidating pattern points to a potential breakout to the upside.

“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,” she said.

Piper Sandler’s Craig Johnson presented another safer trade idea on “Trading Nation”: casual fast-food chain Chipotle Mexican Grill, Inc. (NYSE: CMG).

Chipotle stands to benefit from the current health situation that still has many customers worried about indoor dining, he said. People are “concerned” about eating out at a time when restaurants aren’t open at full capacity. Instead, investors should focus on fast-food chains like Chipotle that continue to perfect their off-premise dining.

“That’s where you’re starting to see some of the same-store sales comps really showing to be positive,” he said.

Chipotle has been and should remain a “long-term winner,” he added. Despite trading near all-time highs and experiencing a strong surge in 2020, it is still a name that can be bought.

“This stock looks like it still has more room to run,” he said.