Bears ring the register as $KR declines

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Kroger fell after its quarterly results this morning, handing big gains to downside option traders.

On Tuesday, Investitute’s proprietary programs found that 2,000 Weekly $22 puts that expired today were purchased for $0.41 to $0.49 with shares at $22.65. This was clearly fresh buying, as open interest in the strike was only 548 contracts before the activity appeared.

Today those puts traded up to $1.53, more than tripling in value. The stock fell 9.7 percent in the same time frame, illustrating how options can far outperform their underlying shares. It was the second winning downside trade that Kroger has seen in as many weeks.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

KR dropped 7.51 percent to $21.06 today. The grocery chain fell this morning after announcing that it would no longer provide long-term guidance.

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Mike Yamamoto

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