Schaeffer's Trading Floor Blog

Bears Pile On as ConAgra Foods, Inc. (CAG) Struggles

CAG puts have been popular amid downtrend

by 2/11/2014 11:33 AM
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It's been a terrible month for ConAgra Foods, Inc. (NYSE:CAG), with the shares down almost 14% to churn near $29.14. In today's session alone, the equity was 6.2% lower at last check -- after earlier wallowing to a new annual low -- in the wake of a pair of fundamental follies. Not surprisingly, puts are trading at more than 19 times typical intraday levels, and are outpacing calls by about 3,000 contracts.

However, today's put-skewed bias is reflective of the withstanding trend witnessed in CAG's options pits. Over the course of the past five sessions, speculators at the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 8,964 puts on CAG, compared to just 104 calls.

Widening the scope to include data from the NASDAQ OMX PHLX (PHLX) -- and expanding the time frame to two weeks -- yields more of the same. Specifically, CAG's 10-day ISE/CBOE/PHLX put/call volume ratio has soared to 33.55 from its week-ago reading of 0.48, and the current ratio ranks in the highest percentile of its annual range. Simply stated, puts have been bought to open over calls at an annual-high clip in recent weeks.

A number of these put players will be pleased with today's drop, as peak put open interest in the front-month series is found at the now in-the-money February 30 strike. Nearly 10,900 contracts have been initiated here -- the vast majority of which were bought to open yesterday. In other words, these bearish bettors were anticipating a move south of $30 over the next week or so.

The growing skepticism toward CAG is seen elsewhere on the Street, as well. Short interest rose 7.9% in the most recent reporting period, but still only accounts for 1.7% of the stock's available float. Going forward, CAG could meet even more headwinds on the charts, should short sellers continue to pile on.

As touched upon, today's move lower comes on the heels of last night's announcement that ConAgra Foods, Inc. (NYSE:CAG) is postponing its flour mill merger with Cargill Inc and CHS Inc. (NASDAQ:CHSCP) as it awaits regulatory approval. Additionally, the packaged food concern this morning downwardly revised its fiscal full-year outlook, citing weak performance in both its private brands and consumer foods divisions.

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