Options Traders Take Aim at Kroger Stock Ahead of Earnings

Kroger will report earnings ahead of tomorrow's opening bell

Jun 14, 2017 at 12:53 PM
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Kroger Co (NYSE:KR) is scheduled to report first-quarter earnings ahead of tomorrow's opening bell. KR stock's post-earnings history has mostly been positive, with the shares ending higher in the session subsequent to reporting five of the past eight quarters. In March, though, Kroger shares suffered a single-day loss of 4.3%, after the grocery chain reported its first same-store sales drop in 13 years. This time around, the options market is pricing in a 7.7% swing for the stock, regardless of direction.

Options traders seem mixed as to which direction KR stock will go after earnings, though the majority of the attention from both call and put players in recent weeks has centered at the 29 strike. Specifically, KR's June 29 call and put have seen the biggest increases in open interest in the past 10 sessions, with 17,059 contracts collectively initiated.

Data from the major options exchanges confirms more than 8,500 new positions were purchased at the June 29 call on May 31, when KR stock was trading near $29.78. By buying to open the calls, options traders expect the equity to widen its lead north of the strike through this Friday's close, when front-month options expire.

Conversely, Trade-Alert indicates a block of 5,200 June 29 puts was bought to open for $208,000 (number of contracts * $0.40 premium paid * 100 shares per contract). This is the most the put buyer stands to lose, should Kroger stock settle north of $29 at week's end, while profit will accumulate on a move south of breakeven at $28.60 (strike less premium paid).

More broadly, it's been call players who are dominating KR's options pits. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.41 ranks in the 7th annual percentile, meaning short-term options traders have rarely been as call-skewed toward Kroger as they are now. Plus, total call open interest is docked at a 52-week peak of 139,016 contracts (though put open interest of 103,753 contracts is in the 93rd percentile of its annual range).

On the charts, KR stock has struggled over the past 12 months, down nearly 16%. More recently, the shares have been stuck trading below their 200-week moving average since their early March negative earnings reaction. At last check, the equity was trading down 0.9% at $30.06, after Kroger won a $16 million bid to purchase 11 Marsh Supermarkets stores in Indiana.

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