Kroger Options Traders Bet on a Post-Earnings Volatility Crush

Kroger's fourth-quarter earnings and current-quarter forecast fell short

Mar 7, 2019 at 9:47 AM
facebook twitter linkedin

The shares of Kroger Co (NYSE:KR) are spiraling, after the grocery chain reported fourth-quarter adjusted earnings of 48 cents per share on $28.09 billion in revenue -- below consensus estimates. The company also said full-year per-share earnings will arrive between $2.15 and $2.25, less than analysts are expecting, citing increased expenses related to in-store technology and delivery services as competition from Amazon (AMZN) and Walmart (WMT) ramps up.

It's been a choppy stretch for Kroger shares, though all pullbacks -- including an Amazon-related drop late last week -- have been contained by the stock's 320-day moving average. However, with KR stock down 13% to trade at an eight-month low of $24.85, this trendline is at risk of being breached on a closing basis for just the second time since last June.

Short-term Kroger options traders were more call-heavy than usual ahead of earnings, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.97, which ranks in the low 13th annual percentile. However, a deeper dive reveals not all KR call traders are bullish.

Specifically, the weekly 3/8 29-strike call is home to one of KR's top open interest positions, with roughly 4,000 contracts outstanding, and data from the major options exchanges points to notable sell-to-open activity here. In other words, call sellers were betting on Kroger stock to stay below $29 through expiration at tomorrow's close -- or anticipating a post-earnings volatility crush.

Begin the New Year With Schaeffer's 7 FREE 2022 Stock Picks!



Special Offers from Schaeffer's Trading Partners