The Kroger Co (KR) Options Traders Bet On Short-Term Technical Trouble

The Kroger Co (NYSE:KR) stock is on the rise after the grocer raised its quarterly dividend

by Josh Selway

Published on Jun 23, 2016 at 2:46 PM

Grocery stock The Kroger Co (NYSE:KR) has gained 0.9% at $34.54, after the company increased its quarterly dividend -- saying it will continue to do so "over time" -- and approved a $500 million stock buyback plan at its annual shareholders meeting today. Looking back, it's been an uninspiring year for KR, with the shares down 17.4%, and recent rally attempts rejected by their 80-day moving average. Elsewhere, sentiment on KR is mixed across Wall Street, with analysts taking a glass-half-full approach, and traders both in and out of the options pits expressing skepticism toward the stock.

Diving deeper, seventeen brokerage firms track the stock, and 12 of them rate it a "buy" or better, with just two recommending to sell it. In fact, Hilliard Lyons boosted its rating on the shares to "buy" earlier. KR's average 12-month price target, meanwhile, comes in at $41.52 -- a more than 20% premium to current levels. 

Options traders, on the other hand, have shown distinctly bearish tendencies. For one, KR's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.84 -- in the 89th annual percentile. In other words, put buying has outpaced call buying at a highly unusual rate. 

Moreover, the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) comes in at 2.47. This tells us that put open interest easily doubles call open interest among near-the-money options in the front-month July series.

Taking a closer look, the July 35 put is home to peak open interest of 16,384 contracts for all KR options, and data from the major options exchanges confirms substantial buy-to-open activity here. In other words, traders are hoping to see the stock fall further below the $35 level by July options expiration at the close on Friday, July 15. 

Now's not a bad time to speculate on KR with short-term options, either. This is according to the stock's Schaeffer's Volatility Index (SVI) of 25%, which ranks below three-fourths of the past year's worth of readings. Said simply, the options market is pricing in relatively low volatility expectations at the moment.

Meanwhile, The Kroger Co's (NYSE:KR) short-interest ratio comes in at a healthy 4.40, indicating almost a week's worth of buying power is on the sidelines, going by average trading volumes. However, it appears short sellers have already started to call it a day, with short interest on KR down almost 8% in the last reporting period. 

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