Shares of food giant The Kraft Heinz Company (KHC) rose in the first few months of the year, only to decline in the past few months. One trader sees a short-term rally in the works.
That’s based on the December 31st $35 calls. With 17 days until expiration, 15,559 contracts traded against a prior open interest of 318, for a 49-fold surge in volume. The buyer of the calls paid $0.40 to make the trade.
The stock’s decline over the past few months has left shares trading at about where they started the year. Revenue has also been flat at the company over the past year, although overall earnings are up about 23 percent.
Action to take: Thanks to decent earnings and a flat share price, the stock trades at 13 times forward earnings, a relative bargain in today’s markets. Investors may like shares here, as they likely have upside potential as well as pay a 4.7 percent dividend right now. Investors could also likely sell covered calls against shares consistently for increased income on top of the dividend.
For traders, the calls expiring at the end of the month/year look interesting, given their low price. A modest rally in shares by year-end could lead to high-double digit returns on this trade, and the trade is just out-of-the-money.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.