Packaged foods have struggled for a long time, while energy’s been coming to life. Those themes played out in a big way today in the options market.
The first head-turner hit in General Mills (GIS) less than two minutes into the session, with buyers snapping up the April 45 puts. They initially paid about $1.47, then $1.75 and $1.80, then $1.90. Some 14,000 contracts had changed hands by lunch, almost double the previous open interest at the strike.
Puts fix the level where a stock can be sold, so they move in the opposite direction as price. Traders use them to hedge long positions or to speculate on a drop. GIS is little changed around $44.59 in afternoon trading, with puts outnumbering calls by a bearish 3-to-1 ratio.
The downside positioning comes shortly after a profit warning triggered GIS’s biggest drop in nine years. Management blamed higher costs, but the maker of Cheerios and Wheaties was already pressured by weak sales. That follows a trend in most other consumer-products firms as once-mighty brands face new competition. Ever heard of Aldi’s?
Options traders took just the opposite approach to Whiting Petroleum (WLL), an unconventional oil-and-gas driller based in Colorado… exactly the kind of company driving the rebound in domestic energy production.
First, they snapped up about 4,700 weekly 23-March 33.50 calls expiring today for $0.90 to $1.15. Volume roughly matched previous open interest, which suggests existing positions were closed. They also sold sold matching numbers of the 29-March 35 calls for $0.69 to $0.81.
Calls are the opposite as puts, fixing the price where a stock can be purchased. They can also be written to generate income. Today it looks like holders of WLL shares had written contracts using covered-call strategies that would force them to exit their positions in the afternoon. Buying them back cost only cost $0.20 and raises their potential liquidation price by $1.50.
A mirror-image kind of transaction came next: 6,000 April 30 calls were sold for about $5.35 and an equal number of April 32s were bought for about $3.80. This time it looks like a long position in the 30s was rolled up to the higher strike. Making the adjustment let the investor recover about $1.55 of their capital.
The two trades were different on the surface but both were potentially bullish because they reflected a belief WLL will continue higher in coming weeks. The stock’s already up more than 40 percent since mid-February thanks to a strong earnings report and a potential breakout in crude oil. It also trades for less than book value and short interest represents about 19 percent of the float.
WLL rose 2.45 percent to $34.07, with calls outpacing puts by more than 10-to-1.