Bulls Should Buy the Dip on This Grocery Powerhouse

The security could soon benefit from a short squeeze, to boot

May 5, 2021 at 11:06 AM
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The shares of retail giant Kroger Co (NYSE:KR) are outperforming the broader market, up roughly 15% year-to-date. What’s more, the security recently pulled back to the significant 40-day moving average. With that in mind, now seems like a great opportunity to speculate on KR’s next move higher.

 
Analysts are still hesitant towards the equity, leaving ample room for upgrades going forward. Of the 15 in coverage, 13 carry a tepid “hold” or worse rating, while only two say “strong buy.” Should some of that negative sentiment begin to unwind, Kroger stock could go even higher.
 
Meanwhile, short interest has added roughly 125% since March 2020, and currently stands at historically high levels. This suggests the security could soon benefit from a short squeeze, as the 60.76 million shares sold account for 8.1% of the stock’s available float, or over a week’s worth of pent-up buying power.
 
A shift in the options pits could mean additional tailwinds for Kroger stock, too. This is per KR’s Schaeffer's put/call open interest ratio (SOIR) of 1.5, which stands higher than all other readings from the past year. This means short-term options players haven’t been more put-biased during this time.
 
Lastly, KR options are a bargain at the moment. The security's Schaeffer's Volatility Index (SVI) of 22% sits higher than just 1% of readings from the last 12 months, indicating it currently sports attractively priced premiums. Our recommended call option has a leverage ratio of 9.1, and will double in value on a 10.3% pop in the underlying equity.


Subscribers to Schaeffer's Weekend Trader options recommendation service received this KR commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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