Why Kroger Co (KR) Could Be Due for Some Post-Earnings Upside

Kroger Co (KR) is scheduled to report earnings bright and early tomorrow

Mar 4, 2015 at 10:40 AM
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Kroger Co (NYSE:KR) is slated to take its turn in the earnings confessional ahead of tomorrow's open, and put players have set their sights on the stock in the lead-up to the big event. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), KR's 50-day put/call volume ratio of 0.28 ranks in the 86th annual percentile. Simply stated, puts have been bought to open over calls at a faster-than-usual clip.

In today's trading, puts are crossing the tape at a rate nine times the intraday average. It appears one speculator in particular is adjusting her bearish bet, as she braces for a steep post-earnings plunge. Specifically, it seems as if this trader rolled her long March 65 put down to the 62.50 strike, as she gambles on KR breaching the $62.50 mark by the close on Friday, March 20, when front-month options expire.

Meanwhile, put buyers have been willing to pay a pretty penny for their pre-earnings bets. For starters, the stock's 30-day at-the-money implied volatility of 26.2% rests in the 99th percentile of its annual range. Plus, KR's Schaeffer's Volatility Index (SVI) of 29% ranks higher than 64% of similar readings taken in the past year. In other words, premium on the equity's front-month options is currently pricing in heightened volatility expectations.

Technically speaking, KR has been a standout over the past 52 weeks, boasting a 58.4% lead. What's more, after hitting a record peak of $73.60 on Feb. 18, the stock has more recently been consolidating atop its 10-week moving average -- a trendline that has ushered KR higher since February 2014 -- to trade at $69.24. Should the shares extend this long-term momentum post-earnings, an unwinding of skepticism both in and out of the options pits could help fuel Kroger Co's (NYSE:KR) fire.

Weekly Chart of KR Since February 2014 With 10-Week Moving Average
 

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