United Natural Foods, Inc. (UNFI) Bears Turn to Put Options

United Natural Foods, Inc. (UNFI) is getting hammered with heavy put option volume after the company lowered its full-year guidance

Feb 29, 2016 at 11:56 AM
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United Natural Foods, Inc. (NASDAQ:UNFI) is taking it on the chin today, with the stock tumbling after the company reported disappointing preliminary fiscal second-quarter earnings and took a hatchet to its full-year outlook, citing "rapidly changing near term industry dynamics." In addition, UNFI said it agreed to buy Haddon House for nearly $218 million in cash.

At last check, UNFI is down 22.5% at $30.40, fresh off a five-year low of $30.28, and on track for its worst single-session percentage loss in at least eight years. With the stock on the short-sale restricted list, put option volume has exploded, with over 1,100 contracts on the tape -- 163 times the expected intraday volume.

Digging deeper, traders appear to be buying to open put options at the May 25 strike, anticipating additional downside through May options expiration. If the shares fail to breach $25 within the option's lifetime, the most the buyers stand to lose is the initial premium paid. However, now is an expensive time to purchase premium on short-term UNFI options, as the stock's 52-week at-the-money implied volatility earlier hit an annual high of 58.4%.

While UNFI typically doesn't attract much attention from options players, today's preference for puts is more of the same. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a put/call volume ratio of 4.33 -- with long puts more than quadrupling calls.

The brokerage bunch is also quite skeptical of United Natural Foods, Inc. (NASDAQ:UNFI). Of the 13 analysts tracking the stock, nine have doled out a "hold" or "sell" rating. Just this morning, in fact, Oppenheimer cut its price target on the shares to $35 from $42.

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