Whole Foods Market, Inc. (WFM) Buyout Buzz Spurs Bullish Betting

Rumors abound that Whole Foods Market, Inc. is a takeover target


Published on Dec 16, 2014 at 10:16 AM
Updated on Apr 20, 2015 at 5:32 PM

Whole Foods Market, Inc. (NASDAQ:WFM) calls flew off the shelves yesterday, amid unconfirmed rumors of a possible buyout attempt from Publix Super Markets Inc. Specifically, call volume nearly tripled the intraday norm, and the stock's 30-day at-the-money implied volatility spiked 6.9% to 24.8%, signaling elevated demand for short-term contracts.

Digging deeper, buy-to-open activity was detected at the out-of-the-money December 49.50 and 50 calls. These traders expect WFM to end the week -- when the front-month options expire -- atop the respective strikes.

Technically speaking, shares of the organic grocer have been on a roll recently. Since the end of October, in fact, WFM has tacked on more than 23% to its current perch at $48.47. On a similar note, over the last 40 sessions, the equity has outperformed the broader S&P 500 Index (SPX) by approximately 25 percentage points.

An unwinding of negativity on Wall Street could spell additional gains. For instance, 9.5% of Whole Foods Market, Inc.'s (NASDAQ:WFM) float is sold short, which would take almost nine sessions to repurchase, at the stock's average daily trading volume. Also, 12 out of 21 analysts covering the shares have doled out a "hold" or worse rating. In other words, WFM could benefit from a short-covering rally and/or a round of upgrades.

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