Eleventh-Hour Bulls Pounce On Whole Foods Market, Inc. (WFM)

Whole Foods Market, Inc. (WFM) has soared 14% this week, powered by buyout rumors and upbeat analyst attention

by Alex Eppstein

Published on Dec 11, 2015 at 11:27 AM

Organic grocer Whole Foods Market, Inc. (NASDAQ:WFM) is shooting higher once again following yesterday's unconfirmed buyout chatter, as well as upbeat analyst attention, with the stock up 7.4% at $33.64. In fact, so far this week, the shares have jumped nearly 14%, and are on pace to end atop their 20-week trendline for the first time in eight months. As such, short-term option traders are coming out in full force, betting on extended gains through tonight's close.

At last check, WFM calls were changing hands at 10 times the usual intraday pace. By the numbers, 24,000 contracts are on the tape -- or more than six times the 3,800 puts exchanged so far. Digging deeper, buy-to-open activity is detected at the weekly 12/11 31.50- and 34-strike calls, as speculators wager on eleventh-hour upside.

WFM has been no stranger to call buyers in recent weeks. In fact, during the past 10 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 3.5 calls for each put. The resultant call/put volume ratio of 3.48 ranks in the 89th percentile of its annual range.

Echoing this, WFM's Schaeffer's put/call open interest ratio (SOIR) stands at 0.84 -- lower than 72% of comparable readings from the past year. In other words, calls outweigh puts by a wider-than-usual margin among options expiring in the next three months.

That's not to say the stock doesn't have its fair share of detractors. Over one-tenth of WFM's float is sold short, representing over a week's worth of pent-up buying demand, at the stock's typical volume. While some of these short sellers may be hedged with long calls, those that aren't may be forced to cover on continued strength in the shares -- potentially fueling the fire.

As alluded to earlier, WFM is basking in the glow of some positive analyst attention, with ITG stating the company's sales trends are "tracking above consensus expectations" for the first quarter. Meanwhile, of the 22 analysts tracking Whole Foods Market, Inc. (NASDAQ:WFM), 18 have doled out a tepid "hold" evaluation. If the stock can build on this week's momentum, a round of upgrades could ensue, bolstering buying power. 

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