Unusual Options Activity: Kraft Heinz (KHC)

Kraft Heinz (KHC)

Trader bets on further decline after sales miss.

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  • July 17th put options with a $20 strike on Kraft Heinz (KHC) saw a 9-fold rise in volume, going from 112 open trades to just over 1,030.

    The trade, expiring in 154 days, would move in-the-money if shares dropped about 18 percent from their current price near $27.50.

    The trader paid $0.23, or $23 per contract, to make the bet, so shares would need to drop to $19.70, well below the stock’s 52-week lows, to profit at expiration.

    Shares of Kraft Heinz have struggled over the past year amidst slowing sales and various asset write-downs. The company’s latest earnings report on February 13th beat expectations, as with the prior quarter, but showed that sales are still slowing, and that the company continues to write down its asset values.

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  • Shares dropped on the news and are down 37 percent over the past year.

    Action to take: The improving earnings picture overall, despite the lower sales, is a good sign that the worst is over. While asset write-offs spook the markets, the pace has slowed. We see more upside than downside here.

    As such, we like shares up to $28 thanks to this selloff. Shares yield about 5.3 percent here based on the reduced dividend the company trimmed in the past year.

    Speculators are unlikely to see too many gains on the short side right now. The July $30 calls, now trading for $0.91, look like a reasonable bet on a bounce higher in the coming weeks.

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