Call Buyers Blast K, GIS, and MDLZ On 3G Buyout Buzz

Brazilian buyout firm 3G Capital Inc is reportedly raising capital for a takeover, with Kellogg Company (K), General Mills, Inc. (GIS), and Mondelez International Inc (MDLZ) among the rumored targets

by Karee Venema

Published on Nov 8, 2016 at 3:36 PM

Packaged food stocks are trading higher following reports that Brazilian buyout firm, 3G Capital Inc, is in the process of raising up to $10 billion to finance the purchase of a consumer products company via Kraft Heinz Foods Co (NYSE:HNZ), of which 3G owns a 24% stake. Among food stocks making notable moves are Kellogg Company (NYSE:K), General Mills, Inc. (NYSE:GIS), and Mondelez International Inc (NASDAQ:MDLZ). What's more, K, GIS, and MDLZ are all seeing accelerated trading in the options pits.

After being up nearly 5% earlier, K stock ran into trouble near its 200-day moving average, and has since pared these gains to 2.6% at $76.88. Nevertheless, call volume has surged to six times what's typically seen at this point in the day, with 8,843 contracts on the tape -- nearly 20 times the number of puts traded. Most active is K's July 85 call, where it seems safe to assume new positions are being initiated, as traders bet on the stock rallying through $85 in the next eight months.

Amid relatively low absolute volume, options traders have shown a preference for long calls over puts toward a stock that's currently up 6.4% year-to-date. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Kellogg Company's 10-day call/put volume ratio of 28.34 ranks just 4 percentage points from a 52-week peak.

GIS has popped 2.9% to trade at $63.65, and has now reclaimed a footing north of its 10% year-to-date breakeven mark -- which could support the shares moving forward. As such, GIS call volume has exploded, with the contracts crossing at six times the average intraday rate. By the numbers, 6,273 GIS calls had traded, compared to 745 puts. Options traders are eyeing even more upside over the long term, with buy-to-open activity detected at the security's April 70 call.

Shorter-term GIS traders, meanwhile, are more put-skewed than usual, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.87 -- in the 73rd annual percentile. Plus, short interest jumped 10% in the two most recent reporting periods to 12.5 million shares, or 3.9 times GIS' average daily pace of trading. Should General Mills, Inc. continue to climb, a capitulation from some of the weaker bearish hands could translate into fresh tailwinds for the shares.

Shares of MDLZ -- which had its own failed takeover attempt last summer -- hit an annual high of $46.40 earlier, and were last seen up 4% at $45.99, back in the red on a year-to-date basis. More than 19,000 MDLZ calls have traded so far, triple the expected intraday amount of 5,618. While longer term traders appear to be selling to open the stock's March 47 call -- expecting the strike to serve as a ceiling over the next four months -- shorter-term speculators are buying to open the weekly 11/25 50.50-strike calls. In other words, these traders expect MDLZ stock to surge into uncharted territory by the close on Friday, Nov. 25.

As a point of reference, the highest MDLZ has ever traded was $48.58, touched in August 2015. And although the stock is less than 5 percentage points from this milestone, options traders at the ISE, CBOE, and PHLX have gravitated toward long puts over calls in recent weeks. Specifically, Mondelez International Inc sports a top-heavy 20-day put/call volume ratio of 1.69 across this trio of exchanges.

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