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Options Spike as Whole Foods Market, Inc. (WFM) Sinks

Whole Foods Market, Inc. (NASDAQ:WFM) is following sector peer Sprouts Farmers Market Inc (NASDAQ:SFM) lower

Sep 7, 2016 at 10:44 AM
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Whole Foods Market, Inc. (NASDAQ:WFM) has plunged 5.5% to trade at $29.02, pressured by a steep guidance-induced slide for fellow organic grocer Sprouts Farmers Market Inc (NASDAQ:SFM). Today's big drop has options traders kicking it into high gear -- with total volume running at eight times the average intraday pace, and calls and puts trading in near parity on WFM stock.

Most active is WFM's November 31 call, due to a block of 4,000 contracts that crossed earlier for $0.77 apiece. It looks as if one trader is selling to close her position that may have originally been bought to open last Wednesday, Aug. 31, when the stock was lingering near $30.50. If this is the case, the call buyer is staring at losses, considering the calls were initially purchased for $1.33 each.

Put players, meanwhile, have set their sights on the equity's weekly 9/9 28.50 strike, and there appears to be a mix of buy- and sell-to-open activity occurring. Those purchasing the puts expect WFM to breach the strike by this Friday's close, when the weekly options expire. Those writing the puts are betting on $28.50 to serve as a short-term floor. Earlier, the stock bottomed at an intraday low of $28.49.

More broadly speaking, call buying has been picking up speed in recent weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, WFM's top-heavy 10-day call/put volume ratio of 5.42 across this trio of exchanges ranks in the 96th annual percentile.

Echoing this call-skewed backdrop is WFM's Schaeffer's put/call open interest ratio (SOIR) of 0.72. Not only does this show that calls outweigh puts among options expiring in three months or less, but it rests below 94% of all comparable readings taken in the past year, meaning short-term speculators are more call-heavy than usual toward WFM stock.

Outside of the options pits, sentiment is more skeptical. In fact, nearly 12% of the equity's float is sold short -- or eight times WFM's average daily pace of trading. As such, it's possible that a portion of the recent call buying could be a result of shorts hedging against any unexpected upside.

Technically, Whole Foods Market, Inc. (NASDAQ:WFM) has put in a dismal showing over the past year, down more than 10% and stuck wallowing beneath the $35 mark. More recently, WFM has been pinned under its 200-day moving average since a late-July bear gap -- a trendline that served as stiff resistance in March.

WFM daily chart September 6

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