Processed food business Kraft Heinz Company (KHC) has been rallying over the past few weeks, but is up just 5% over the past year. One trader sees shares pulling back over the coming weeks.
That’s based on the September 20 $33.50 puts. With 28 days until expiration, 6,478 contracts traded compared to a prior open interest of 188, for a 35-fold rise in volume on the trade. The buyer of the puts paid $0.19 to make the bearish bet.
Kraft shares recently trade just under $35.50, so the stock would need to drop by about $2.00, or just over 5%, for the options to move in-the-money. Kraft shares have been stuck in a range between $31 and $39 over the past year.
Revenues are off by 4% as consumers have cut back on name-brand goods. Earnings growth has collapsed by nearly 90% over the last year as well.
Action to take: The lackluster return on shares leaves the company trading at 11 times forward earnings. And Kraft pays a dividend of about 4.5%, both metrics indicating a reasonable value play here.
For traders, the September $33.50 puts play well to any potential market weakness in the coming weeks. And Kraft shares are looking a little overbought in the short-term after their recent rally. Traders can likely see high double-digit returns given the low price on the option.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.