Whole Foods Market, Inc. (WFM) Shakes Off the Haters on Earnings Beat

A capitulation among bearish options traders and short sellers could send Whole Foods Market, Inc. (WFM) even higher

by Alex Eppstein

Published on May 5, 2016 at 11:46 AM

Whole Foods Market, Inc. (NASDAQ:WFM) is breaking out, as its slight earnings beat seems to be outweighing everything else. Indeed, the organic grocer missed on quarterly sales, reported a decline in same-store sales, and was the target of price-target cuts at Credit Suisse, SunTrust Robinson, J.P. Morgan Securities, and Sterne Agee CRT -- yet the stock is 4.8% higher at $29.89. Suffice it to say, bearish bettors in the options pits and beyond may be kicking rocks.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), WFM has amassed a 10-day put/call volume ratio of 1.07 -- in the high 87th annual percentile. Underscoring this appetite for puts over calls -- particularly among short-term options traders -- is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.30, which rests just 1 percentage point from a 52-week peak. Puts continue to be popular today, too, with intraday volume at five times normal levels.

Buyers of put options aren't the only ones potentially getting burnt today. Short interest, for instance, spiked over 24% during the most recent reporting period. Now, 12.5% of WFM's float is dedicated to short interest, which -- at average trading levels -- would take more than seven sessions to cover. In other words, there's a lot of pent-up buying power on the sidelines.

And while analysts today have been panning WFM's earnings, there's massive potential for future upgrades. Of the 21 brokerages tracking the stock, all but three have handed out a "hold" or worse recommendation. Plus, the shares' consensus 12-month price target of $29.41 is almost equal to the current perch, suggesting price-target hikes could be in line, if WFM maintains its hot streak.

Of course, that's a big "if." Whole Foods Market, Inc. (NASDAQ:WFM) is a historical underperformer, and has been moving steadily lower since its early March high at $34.77. However, should the stock take out its 30-day moving average for the first time since late March, there could be additional room to run higher.

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