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Option Bears Bet on More Downside for Struggling Supervalu

Traders took a shine to SVU's April 5 puts

by 3/15/2012 9:47 AM
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Put players targeted Supervalu (SVU - 6.16) on Wednesday, with bearishly oriented option volume accelerating to roughly four times the expected level. Nearly 7,000 puts changed hands on SVU yesterday, compared to only 1,131 calls. The most active strike was the equity's April 5 put, where 5,990 contracts crossed the tape. The majority of these puts traded at the ask price, suggesting they were bought, and open interest at this strike ballooned overnight -- confirming the initiation of new positions. By purchasing these near-term put contracts, traders are bracing for SVU to tumble beneath $5 per share prior to April expiration.

However, SVU is no stranger to bearish speculation. Short interest rose by 5.6% during the most recent reporting period, and now accounts for a formidable 33.3% of the equity's float. Plus, on Tuesday, UBS started coverage of the shares with a gloomy "sell" rating.

Given the grocery chain's lackluster price action, though, this rising tide of pessimism isn't too surprising. SVU has slumped 24.6% year-to-date, woefully underperforming the broader equities market. Throughout 2012, the stock's decline has been highlighted by double-barreled resistance at its 10-day and 20-day moving averages, which are currently docked near the $6.50 area. SVU has added 0.7% in early trading today, but the shares haven't yet climbed high enough to challenge these looming trendlines.


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