Option Bulls Buy Whole Foods Market, Inc. (WFM) Buyout Buzz

Amid rumors that Wal-Mart Stores, Inc. (NYSE:WMT) could buy Whole Foods Market, Inc. (NASDAQ:WFM), call buyers jumped in

by Josh Selway

Published on Oct 29, 2015 at 2:43 PM

Shares of Whole Foods Market, Inc. (NASDAQ:WFM) suddenly shot higher in afternoon trading -- and option bulls wasted little time jumping in -- amid unconfirmed rumors that Wal-Mart Stores, Inc. (NYSE:WMT) may be interested in buying the health-conscious grocer. After jumping to $31.29 earlier, however, WFM has erased its lead, dropping 0.4% to sit at $30.02. 

Call volume on the equity is running at five times the average rate, and has outpaced put volume by a margin of 6-to-1. Traders have taken a strong interest in the weekly 10/30 series, with the 30.50-strike call coming in as the most popular by far; more than 7,700 contracts have crossed here, compared to fewer than 3,000 from the next closest option. With buy-to-open action detected, traders were betting on extended gains from the shares before the options expire at tomorrow's close. 

What makes this activity particularly interesting is that it represents a complete 180 from the recent trend in WFM's option pits. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has accrued a 10-day put/call volume ratio of 1.93. This means nearly two puts have been bought to open for every call during the past two weeks. Plus, it ranks higher than 97% of similar readings from the past year, signaling an a healthier-than-usual preference for long puts over calls. 

Moving on, short sellers are probably hoping today's M&A buzz is unsubstantiated. The 29 million WFM shares sold short would take six days for bears to repurchase, using the security's normal daily volumes. 

The bearish bias continues when looking to the brokerage bunch. Seventeen of 23 covering analysts rate the equity a "hold." Just this morning, in fact, Sterne Agree CRT lowered is price target to $34. What's more, a negative note from Cowen and Company sent the shares reeling earlier this week.

Really, there hasn't been a reason to not be bearish toward Whole Foods Market, Inc. (NASDAQ:WFM). Coming into today, the shares had given back over 40%, with recent breakout attempts cut short by their 60-day moving average. We'll see if the company can turn things around when it unveils earnings after the close next Wednesday. 

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