Tuesday, February 28, 2012

Kroger (KR) - Large Bearish Bets Rolls in Ahead of Earnings

KR is trading $23.82, down small with IV30™ up 2.2%. The LIVEVOL® Pro Summary is below.


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The Kroger Co. is a retailer in the United States. The Company also manufactures and processes some of the food for sale in its supermarkets.

This is an order flow note with earnings due out in two days BMO. The company has traded almost 71,000 contracts on total daily average option volume of just 1,565. The largest trade looks like a purchase of a an Apr 23 / Mar 22 put spread funded by a sale of Mar 25 calls. Each leg was done 19,750x for 59,250 contracts. I believe the trade was done with 840,000 shares (purchases). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that all three legs are mostly opening (compare OI to trade size). When looking down the entire option chain for KR, I don't see any OI close to those sizes, so all sides of this trade are very large. One caveat here, 840,000 to 59,250 contracts is just 14 delta The put spread with the short puts is actually more like 45 delta. So it's either not a full hedge (thus a substantially bearish bet), or I'm totally misreading this.

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see the elevated front month vol, which is normal given that earnings are due out very soon. All three of the front expiries show a normal skew skew shape -- not a whole lot "special" here.

Finally, the Charts Tab (six months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock has been pretty steady (note the values on the vertical axis). The HV20™ is 18.21% and the HV60™ is 17.43%. The implied has been rising from 17.70% on 1-23-2012 to now over 26%.

It will be interesting to see how earnings play out -- that's a huge bet given he relative stability of the stock price of late (HV measures).  I do note that the puts are owned in April -- not March.

This is trade analysis, not a recommendation.

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