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Kellogg Sees a Rise in Bullish Options Activity

Back-month call volume ramps up on K

by 3/27/2012 10:30 AM
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Bullish bettors targeted Kellogg Company (K - 53.10) in the options pits on Monday, as close to 3,100 calls changed hands, which was more than four times above the norm. Over 2,400 of these calls were traded at the out-of-the-money May 55 strike -- most of them at the ask price, suggesting they were bought. Open interest at this strike rose by 2,259 contracts overnight, making it safe to say that most of the volume consisted of new positions. This option now carries peak call open interest of 2,418 contracts. In order for investors to collect a profit from these bought-to-open calls, the stock must power north of the $55 mark by May expiration.

This skew toward calls over puts is more of the same for K. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 16.58 for the stock, confirming that calls bought to open have outnumbered puts by more than 16 to one during the past two weeks. In fact, this ratio sits just three percentage points away from a yearly peak, conveying that traders have been picking up bullish options over bearish at an almost annual-high clip.

Elsewhere, short interest on the cereal manufacturer soared by more than 27% during the most recent reporting period, implying that some of the aforementioned buy-to-open call volume could be attributable to short sellers seeking to hedge their bets. However, K's bearish camp is far from crowded, as these shorted shares make up a modest 2% of the equity's float.

On the technical front, K had gained roughly 5% so far this year, but has lagged the broader S&P 500 Index (SPX) by close to 8% over the last 60 days. A look at the charts shows that the stock is on pace to close the month above its 10-month moving average for the first time since last August.

At last check, the equity is up about 0.5% to trade at $53.10.


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