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The Kroger Co. (NYSE:KR) is trending higher in parity with the broader market today, touching a new all-time high of $35.45 just before noon. As such, around 7,800 calls have changed hands thus far -- more than eight times the norm, and about 25 times the number of puts traded. A handful of these bulls are hoping the grocery chain will continue climbing north of the $35 level, while a group of longer-term call players are betting on even loftier new highs for KR.
Diving right in, the July 35 call has received the most attention, with 5,164 contracts crossing the tape at a volume-weighted average price (VWAP) of $1.28. The vast majority were exchanged at the ask price, suggesting they were bought. Since this strike holds open interest of just 671 contracts -- and implied volatility was last seen 1.8 percentage points higher -- it's likely that new positions are being added here. In other words, speculators are counting on KR to ascend past the $36.28 mark (strike price plus the VWAP) by back-month expiration. The delta for these options sits at 0.55, meaning they have a 55% chance of finishing in the money.
Also on the options radar is the October 37 call, which has seen 1,080 contracts trade during the course of the session -- almost all of them at the ask price, pointing to buyer-driven activity. Again, today's volume has surpassed current open interest levels, and implied volatility has ticked up since the opening bell, making it safe to assume that new bullish bets were established here, as well. In this case, however, traders will profit if KR conquers the breakeven level of $38.20 (strike price plus the VWAP of $1.20) by the close on Oct. 18. This represents an increase of 8.3% over the equity's present perch at $35.27.
This surge in call volume is a deviation from the stock's recent trend in the options pits. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day put/call volume ratio of 1.15, indicating puts bought to open have outweighed calls during the past 10 weeks. This ratio ranks higher than 66% of similar annual readings, denoting a stronger-than-usual preference for puts over calls in recent months. An unwinding of these bearish bets -- particularly at the underfoot June 33 strike, which holds peak put open interest of almost 5,400 contracts -- could end up translating into options-related support as front-month expiration draws closer.
Technically, The Kroger Co. has gained nearly 36% year-to-date, and more than 54% on a year-over-year basis. On the charts, the stock continues to trade north of its 10-week moving average, which has served as a nearly impenetrable layer of support since last August.
It also bears mentioning that the grocer is on tap to reveal quarterly earnings ahead of the open this Thursday. Analysts are expecting a profit of 88 cents per share.