Two Big Money Bulls Go Grocery Shopping

Hey Traders,

With all the talk about inflation, “consumer goods” has been at the tip of everyone’s tongue …

After all, people always need to eat …

So these “necessity” names should be relatively immune to the throes of inflation … right?

But while we’ve been snapping up whatever goods we can find on the shelf at the grocery store…

Big Money has been doing some shopping of their own.

And these two bulls are getting ready for a post-Thanksgiving feast.

Looking For A Snack

You might think that Kraft Heinz Co. (Ticker: KHC), the largest packaged goods company according to market cap, should be one of those names considered to be rather immune to the effects of inflation …

But that hasn’t stopped the shares from sliding slowly and steadily lower over the last six months, after hitting a more-than-two-year high of $43.72 in June.

Although KHC’s earnings beat in late October seemed to be working to turn the shares around, just a few weeks ago the company announced a $2 billion offering, which promptly reversed KHC’s trend higher, and saw the shares gap lower. 

Of course, the recent Black Friday sell-off only exacerbated this slide, and KHC slid an additional 3.4% on Tuesday to close at $33.61:

However, two Big Money traders have been quick to hop on the KHC train this week, and seem to be looking for the snacking stock to turn things around.

What exactly are they hoping to see?

Let’s take a look.

Monday:

On Monday, KHC saw a block of 18,638 December 10 37-strike calls cross the tape for just $0.06 …

Even though the calls were on the cheap side, this trader still shelled out $111,828 to make this bullish play.

At the time, KHC only needed to gain 6.5% to make those calls profitable …

But remember, that was before Tuesday’s 3.4% slide.

Now, this trader needs KHC to  gain more than 10% over the next eight trading days if they want these calls to end up in-the-money …

Tuesday:

Tuesday’s Big Money trader seemed perhaps a bit less outright bullish …

And given Tuesday’s disappointing move lower for KHC, I can maybe see why …

Interestingly, this trader sold to close 15,000 contracts of the December 10 35-strike calls for $0.20. This brought in $300,000 in premium, which the trader could have walked away with …

But instead, they decided to roll their trade out, and more-than-double-down!

This time, they didn’t commit to an outright call buy …

They took a more neutral-to-bullish stance, opening a ratio call spread in the standard December expiration term.

The trader bought 20,000 contracts of the 34-strike calls for $0.77, while selling 30,000 contracts of the 36-strike calls for $0.12.

Now, to purchase the 34-strike calls outright would have required an outlay of $1,540,000.

However, the sale of the 30,000 December 36-strike calls brought in $360,000 in premium received.

When you add in the premium from closing out the original 35-strike calls, this trader was able to lower their purchase cost to just $880,000.

A bargain … sort of.

See, while this ratio spread helps limit the initial outlay required to open the trade, it also opens the trader up to significantly more risk, as 10,000 of their calls sold are not covered by a purchased call at a lower strike.

Let’s say KHC sees a miraculous recovery over the next three weeks …

That’s 10,000 call contracts … the equivalent of a million shares … this trader could be on the hook for.

This trade accounted for a huge amount of KHC’s raw trading volume on Tuesday …

KHC’s pits saw 91,214 calls cross the tape … a whopping 1,159% of its typical daily volume!

Puts were also elevated, but less dramatically so …

The 12,297 puts that changed hands on Tuesday was merely 352% of KHC’s average daily put volume.

Open interest is also elevated, though less dramatically so, with 363,422 contracts currently open, or 112% of KHC’s typical OI.

It seems these two bulls aren’t the only ones watching this consumer stock …

But they may be the largest.

I would be keeping an eye on this “inflation-proof” stock in the immediate weeks ahead …

Your Only Option,

Mark Sebastian

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