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Bearish ConAgra Foods Traders Bet on a Reversal

CAG's March options gain traction with bearish speculators

by 12/18/2012 9:45 AM
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Speculators have been upping the bearish ante on ConAgra Foods, Inc. (NYSE:CAG - 30.25) lately, according to data pulled from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the equity's 10-day put/call volume ratio checks in at 2.86, confirming calls bought to open have nearly tripled puts during the past couple of weeks. This ratio is just five percentage points shy of a yearly peak -- meaning traders have been snapping up puts over calls at a near annual-high pace.

Monday's session was no exception, as CAG saw more than 6,500 puts cross the tape. This was almost nine times the security's average single-session put volume, and quadruple the number of calls exchanged. Most active was the March 25 put, where north of 5,000 contracts changed hands -- 99% of them at the ask price, pointing to buyer-fueled activity. These out-of-the-money contracts traded at a volume-weighted average price (VWAP) of $0.16.

Meanwhile, open interest at this strike rose by 4,925 contracts overnight, making it safe to assume that new positions were initiated here. This option now holds peak put open interest of 5,085 contracts. In order for traders to secure a profit on these bought-to-open puts, the stock must fall below breakeven at $24.84 (strike price less the VWAP) by the time March options expire. This would require an 18% retreat of the shares from their current perch over the next few months.

Elsewhere, sentiment toward CAG among the brokerage bunch appears to be evenly split. The security currently sports five "buy" or better ratings, compared to five "holds," and zero "sell" recommendations. Still, Thomson Reuters shows an average 12-month price target of $33.60 for the frozen food behemoth, representing an 11% premium to yesterday's closing price of $30.32.

Technically speaking, CAG has climbed nearly 15% year-to-date. The security has also outperformed the broader S&P 500 Index (SPX) by more than 21 percentage points during the past three months. On the charts, the stock continues to trade atop its 10-day moving average, which has served as support for more than a month.

It should also be noted that CAG is on deck to report quarterly earnings prior to the start of Thursday's session, and has bested consensus bottom-line projections in each of the past four quarters. Analysts, on average, are expecting a profit of 55 cents per share.


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