Call Buying Explodes During Hormel Foods Stock Spike

Call volume is almost three times that of put volume on Hormel today

Josh Selway
Apr 4, 2018 at 2:04 PM
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Stocks today are trading around news China will implement tariffs on U.S. imports, resulting in heavy losses for certain agriculture names. On the flip side, meat producers are getting a boost, with traders speculating that the drop in soybean prices will benefit the group. One name in particular that's rallying and seeing unusual options trading is Hormel Foods Corp (NYSE:HRL). The shares are trading up 5.3% at $36.06, putting them between two key technical levels.

Specifically, HRL stock has comfortably cleared the 320-day moving average, a trendline that's alternated between support and resistance during the past two years. Most recently, the moving average kept a tight lid on the shares through February and March. Bears, on the other hand, may instead focus on the fact the security topped out today near its year-to-date breakeven point.

Speaking of bears, there have been plenty surrounding the equity. Short interest is very high on Hormel Foods, accounting for over 13% of the total float, and going by average daily volumes, it'd take more than three weeks to buy back these positions. In the last two reporting periods alone short interest jumped 14.2% to the highest point since at least 2002.

Options traders historically have shown bearish tendencies, too. HRL has a 10-day put/call volume ratio of 4.23 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does this show put buying has quadrupled call buying in the past two weeks, but it's 92nd annual percentile rank indicates such a preference for puts over calls is highly unusual.

It's a different story today, however. Call options are trading at six times the expected pace, nearly tripling put volume in the process. New positions are being opened at a number of near-term contracts in the April and May series, but the most popular overall is the June 37.50 call. Looking back, the stock's 52-week high stands at $38, reached on Dec. 5.


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