General Mills, Inc. (GIS) New High Attracts Bold Option Bulls

General Mills, Inc. (GIS) soared to a new high today after upbeat earnings were rewarded with a round of bullish brokerage attention

Jun 30, 2016 at 2:33 PM
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Analysts are taking notice of General Mills, Inc. (NYSE:GIS) today, after the company reported strong quarterly earnings on Wednesday morning. Among them, BofA-Merrill Lynch upgraded its rating on the stock to "neutral," while no fewer than seven brokerage firms increased their price targets. Against this bullish backdrop -- and as buyout buzz swirls around the sector -- GIS hit a fresh all-time high of $71.78 earlier, and was last seen up 4.7% at $71.08. With this noteworthy price action, the stock's options pits are on fire.

GIS calls are changing hands at 10 times their usual intraday rate, with nearly 14,000 contracts on the tape -- more than twice the number of puts exchanged thus far. Most active is the July 70 call, and it appears some of the activity is of the buy-to-open kind. It also appears bullish speculators are purchasing new positions at the August 72.50 call. In other words, these call buyers expect GIS to extend its record-setting run over the next several weeks.

Taking a step back, today's preference for calls is just par for the course among GIS option traders. In fact, the stock's 10-day call/put volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.13 -- in the moderately bullish 65th annual percentile.

Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.50 shows call open interest doubles put open interest among options set to expire in three months or less. Plus, this ratio is lower than 86% of the past year's readings, indicating near-term traders have been unusually call-heavy toward GIS. Furthermore, the stock's front-month gamma-weighted SOIR of 0.21 shows calls outnumber puts nearly 5-to-1 among near-the-money options in the July series.

Outside of the options pits, traders also appear relatively optimistic. Short interest on GIS has been fairly stable of late, representing a modest 2.3% of the stock's total float.

Analysts, however, have taken a distinctly more downbeat view. Of the 12 brokerages following the stock, only three recommend buying it. Plus, the average 12-month price target now sits well underfoot, at $63.00. Considering today's flight to new highs, and the stock's 24% year-to-date lead, further upgrades could be just around the corner for General Mills, Inc. (NYSE:GIS), creating additional tailwinds for the shares.

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