Downside option positions are soaring on Kroger’s misfortunes.
Just yesterday we posted an update showing significant profits from 3,200 June $30 puts purchased for $0.90 to $0.95 a little over a week ago. Shares traded for $29.80 at that time.
Only 24 hours later, those contracts nearly doubled in value to $9.94–a gain of more than 900 percent from their original purchase price. The stock has dropped about 29.6 percent in the same period, a significant move but nothing compared to that of the options.
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 fell 9.24 percent today to close at $22.29, following a drop of 18.89 percent in the previous session. The supermarket-chain operator declined yesterday on weak quarterly results and guidance, then retreated further this morning after Amazon.com announced plans to acquire Kroger rival Whole Foods Market.