Profit Warning Pounds Sprouts Farmers Market Inc (SFM) Stock

Sprouts Farmers Market Inc (SFM) is in free-fall, after the grocer offered up a bleak outlook

by Alex Eppstein

Published on Sep 7, 2016 at 10:23 AM

Sprouts Farmers Market Inc (NASDAQ:SFM) call option buyers could be in trouble. The grocery stock has plunged 13.5% to trade at $19.73, pressured by a severe profit warning -- with the company citing "the prolonged deflationary environment, competitive landscape and industry dynamics." In fact, SFM shares could face their worst daily percentage loss ever, and have landed on the short-sale restricted list.

As alluded to, bullish options traders could be kicking rocks. During the last 50 sessions across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SFM speculators have bought to open 3.80 calls for every put. The corresponding call/put volume ratio ranks just 1 percentage point from an annual peak, hinting at a pronounced bias toward bullish options bets over bearish.

Of course, call buyers may have had an ulterior motive. With 13.7% of SFM's float sold short -- representing six sessions of trading, at the stock's average daily volume -- short sellers may have purchased calls to serve as an upside hedge.

Also contributing to this theory, SFM was sporting a dismal chart, even before this morning's downside gap. Heading into the session, the shares had surrendered 14% year-to-date. That deficit is currently even worse -- at 26% -- with Sprouts stock fresh off an annual low of $19.

That said, if Sprouts Farmers Market Inc (NASDAQ:SFM) shareholders are desperate for a silver lining, they can look to the stock's 14-day Relative Strength Index (RSI). At 21, this reading suggests the shares are oversold -- and could be due for a near-term respite.

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