Shares of grocery store chain The Kroger Co. (KR) have been rising over the past year. One trader sees that trend continuing in the next few days with the potential for a big jump soon.
That’s based on the December 23 $46 calls. With 10 days until expiration, 11,970 contracts traded against a prior open interest of 138, for an 87-fold surge in volume. The buyer of the calls paid $0.30 to get into the trade.
With shares last going for just under $44, shares would need to rise about 6 percent for the option to move in-the-money before expiration in just under two weeks. That’s a big move for a grocery store chain, even if it would still leave shares under their 52-week high of $48.
Grocery stores typically are a steady business, but not a profitable one, and Kroger is no exception with a profit margin under 1 percent.
Action to take: Shares have done well in the past year, with the stock up 37 percent. Shares are still relatively inexpensive at 13 times forward earnings. Shares pay about a 2 percent dividend yield at current prices, so investors could be well paid to wait.
For traders, the calls look like an interesting trade. They’re priced low enough to offer high double-digit returns, but traders will need to be nimble to grab a profit with the low amount of time on the trade.
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 of the companies mentioned in this article.