Earnings Preview: Cal-Maine Foods Inc (CALM)

Cal-Maine Foods Inc (CALM) short sellers may be picking up option hedges on the stock ahead of earnings

Dec 21, 2016 at 12:52 PM
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Egg seller Cal-Maine Foods Inc (NASDAQ:CALM) is gearing up to report earnings tomorrow evening, with shareholders undoubtedly watching closely to see if this latest report goes better than the last one. On Wall Street, a tremendous amount of short sellers are hoping CALM's post-earnings move is to the downside, though some bears may be buying options insurance.

So far today, CALM is up 0.4% at $43.40. The shares have been marking a string of lower highs and lows since their October 2015 all-time peak. After its most recent low in early November, CALM recovered 21%, and now rests near the 32.8% Fibonacci retracement mark of its March-to-November slide. However, the stock's overhead 200-day moving average, which contained rally attempts earlier this year, could serve as a ceiling.


As alluded to earlier, short interest accounts for more than 37% of CALM's float. It would take a whopping 41.8 days of trading to cover all these shorted shares, at CALM's average daily volume. If CALM makes a sudden move higher after earnings tomorrow, a swift exodus of short sellers could help the stock break out of its recent channel.

In the option pits, calls are king. CALM's Schaeffer's put/call open interest ratio (SOIR) of 0.49 sits at an annual low, indicating short-term option players haven't been more call-skewed in the past 12 months. What's more, widening the scope, CALM's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 0.91 sits at an annual peak, indicating calls have been bought to open over puts at an annual-high pace during the past 10 weeks, though absolute volume is very light.

The January 2017 45-strike call is home to peak call open interest, and was the most popular option during the past two weeks, with more than 2,300 contracts added. However, some of those calls may have been bought to open by Cal-Maine Foods Inc (NYSE:CALM) shorts seeking a pre-earnings options hedge.

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