Kraft Heinz Options Traders Active During Sell-Off

Put writers may be targeting the October 22.50 strike

Aug 8, 2019 at 10:06 AM
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Kraft Heinz Co (NASDAQ:KHC) stock is down 12.9% to trade at $26.89 -- fresh off a record low of $26.05 -- after the food company said it would delay its 10-Q second-quarter filing amid a Securities and Exchange Commission (SEC) investigation. Kraft also disclosed write-downs totaling $1.2 billion in its preliminary first-half results, which caused net income to plunge 51% in the six-month period -- something KHC CEO Miguel Patricio said "is nothing we should find acceptable moving forward."

Analyst reaction has been light so far, though Credit Suisse said the "negative tone in release raises the risk for 2019 guide cut and rebase." Most analysts are already skeptical of KHC stock, with all 18 in coverage maintaining a "hold" or "strong sell" rating. There's room for price-target cuts to come down the pike, though, considering the average 12-month target price of $33.84 is a 26% premium to current levels.

Options traders, meanwhile, were positioning for a post-earnings pop. The stock's August 35 call saw the biggest increase in open interest over the past two weeks, and data from the major options exchanges confirms notable buy-to-open activity here. Regardless of where KHC shares settle at the close next Friday, Aug. 16 -- when front-month options expire -- the most the call buyers stand to lose is the initial premium paid.

Today, speculators appear to be setting a floor for the food stock. Roughly 30,000 options have already changed hands on Kraft Heinz already -- above the average daily volume of 17,000 contracts -- and traders may be selling to open the October 22.50 puts. By doing so, they expect the equity to hold above the strike over the next two months.

Looking closer at the charts, KHC stock has been sliding over the past 12 months, down almost 50%. The security's recent rebound off its late-May lows was quickly halted at its 120-day moving average, and today's early drop puts Kraft Heinz on track for its worst day since Feb. 22, when it gapped 27.5% lower.


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