Despite the "recession-proof" nature of the grocery business, The Kroger Co. (KR) has been struggling lately. While it's true that recessions tend to drive consumers away from restaurants and into their own kitchens, the irony is that savvy shoppers have been scooping up lower-cost, generic items -- resulting in lower overall earnings for the industry.
In order to ameliorate the situation, KR recently launched a new online coupon tool designed to help save consumers time and money. Evan Anthony, Kroger's vice president of corporate marketing and advertising, explains, "This new digital coupon center makes it even easier for our customers to save money," adding, "the time and money they save is just the latest way Kroger delivers more value to its customers."
Indeed, the recession seems to have hit KR hard, as the equity is currently pinned beneath long-term resistance from its 10-month and 20-month trendlines -- the latter of which has capped the grocer's progress since November 2008.
However, from a shorter-term perspective, KR appears to have staged a rally, inching slowly -- but steadily -- higher since early June. Along the way, the stock regained the support of its 10-week moving average, and is currently attempting to overtake its 20-week counterpart. KR has not closed a week above this duo since April 23.
KR's troubles on the charts haven't inspired confidence from option players, as illustrated by the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.27, which ranks just one percentage point shy of an annual bearish peak.
However, this elevated SOIR is somewhat misleading, at least in light of today's put activity. Early this morning, 9,587 September 20 puts traded at the bid price of $0.30, indicating they were likely sold. With today's heavy volume exceeding open interest at this strike, it seems these puts were sold to open.
By selling to open the September 20 put, a trader hangs on to his entire premium as long as KR stays above the $20 level through September expiration. Should KR fall beneath this level, the put seller could face assignment, meaning he'd be obligated to purchase 100 shares of KR at $20 apiece from the option holder. In other words, a trader would sell a put to pocket a quick premium, or secure a reasonable price at which to purchase the shares.
In fact, this round number is popular among put players, as both the August and September 20 strikes are home to peak put open interest for their respective series. With KR hovering just north of $21, these substantial accumulations of put open interest could add additional options-related support for the shares.
With KR on track to conquer its 20-week trendline, option traders may reconsider their bearish positions on the stock. With a preponderance of pessimism surrounding the grocery chain, should KR continue to inch higher, an unraveling of pessimism from traders could help reverse the equity's own "recession" on the charts.
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