The sudden emergence of the Omicron variant of COVID-19 has sent the financial markets into a tizzy. To be sure, it is nothing to be trifled with. The virus can be fatal and should be treated with extreme caution.

However, the frantic response to it has created some unusual trading opportunities. In particular, the big hit taken by the food services industry could prove to be an overreaction if Omicron does not force restaurants to close their doors to inside diners this winter.

Let’s face it, most Americans, including this one, enjoy dining out. Particularly at the end of a long workday trapped at home staring at the same four walls. We are willing to give up a lot of personal freedoms to combat the virus, but dining out may be among the last to go.

That is why I am surprised by how steeply many restaurant stocks have fallen over the past two weeks. Some of the fast-food franchises have taken a big hit even though most of their business can be handled via drive-thru windows.

After peaking above $22 on November 24, Wendy’s (NSDQ: WEN) fell more than 6% over the following week. The punishment was considerably worse for Chipotle Mexican Grill (NYSE: CMG). Chipotle does comparatively little drive-through business and fell 13% during the second half of November.

I suspect that the Omicron variant of COVID-19 will not be nearly as disruptive to the restaurant business as its forerunner was in 2020. Nearly two-thirds of the U.S. adult population is fully vaccinated, while 75% have gotten at least one shot.

Have It Your Way

That being the case, I expect most restaurants to remain open throughout the winter. There may be some social distancing restrictions imposed that reduce capacity a bit, but that should reduce overall sales revenue only modestly.

If my hunch proves correct, then owning the AdvisorShares Restaurant ETF (EATZ) could be a smart way to play a recovery in restaurant stocks. Its top three holdings are Chuy’s Holdings (NSDQ: CHUY), Texas Roadhouse (NSDQ: TXRH), and Ruth’s Hospitality Group (NSDQ: RUTH).

This fund was launched eight months ago to capitalize on the presumed positive impact that COVID-19 vaccines would have on the restaurant industry. So far, that hasn’t happened. Until a few weeks ago, EATZ had been gradually losing ground before plummeting over 10% during the second half of November (circled area in the chart below).

I’m not expecting EATZ to go bananas (pun intended). However, I do believe it could quickly rally back above $25 when it becomes apparent that most restaurants will remain open for indoor dining this winter.

That is roughly 20% above where it bottomed out last week. After that, EATZ should continue to appreciate as any remaining concerns regarding the coronavirus pandemic gradually dissipate.

Supersize Me

In a situation such as this, I prefer to buy a call option on the underlying security to amplify the result. If I’m right, I stand to make a bigger percentage gain. But if I’m wrong, I could lose everything.

Unfortunately for me, there are no options trading on EATZ yet. That’s because the fund is too small (only $6 million in total assets), so there would not be enough trading volume to ensure a liquid market.

In that case, I could default to a large restaurant holding company such as Darden Restaurants (NYSE: DRI). Darden owns several national brands including Olive Garden, LongHorn Steakhouse, and Bahama Breeze.

After closing above $155 on November 10, DRI ended the month below $138 after Omicron came on the scene. Last week while DRI was trading near $140, the call option at that strike price that expires on April 14 could be bought for $12.

If my hot take on the Omicron variant proves correct, DRI could be back up to $155 well before then. That would give this option $15 of intrinsic value, which is 25% more than what it cost to buy it.

That’s a nice gain, but you can do better. My colleague, Nathan Slaughter, has recently closed out equity trades netting gains of 127%, 321%, and 140% and he has a new set of recommendations on the way. Click here for details.