Bears Favor At-the-Money Puts on Kraft Foods Inc.

Put volume was unusually heavy yesterday on Kraft Foods Inc. (KFT), with activity surging to twice the usual level. During the course of the session, traders on the International Securities Exchange (ISE) bought to open 5,954 puts on KFT, compared to just 95 calls. In other words, 62.67 times more bearish bets than bullish were purchased.

The day's bias toward pessimistic positions was part of a growing trend for KFT. Between the ISE and the Chicago Board Options Exchange (CBOE), the stock has racked up a 10-day put/call volume ratio of 1.73. This ratio ranks higher than 94% of comparable readings taken during the previous year, as speculators have rarely purchased puts over calls at a faster pace.

Yesterday's flood of bearish option volume occurred as Kraft gained new competition in its bid to acquire Cadbury (CBY), with Hershey (HSY) and Ferrero announcing that they're reviewing a potential offer for the British candy company. Today, puts continue to dominate KFT's option pits -- about 15,000 contracts have traded so far, roughly tripling the expected volume.

Put players have zeroed in on the 27 strike, which is home to peak put open interest for the November and December series of options. With KFT positioned narrowly above this strike, the equity could benefit from options-related support during the short term. However, with stubborn resistance from its 80-day moving average hovering just overhead, the stock's progress could be stymied during the short term.

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