SVU – Supervalu, Inc. – Investors lost their appetite for shares in the third-largest U.S. grocer today, sending the stock down 48% to $2.76 after the company suspended its dividend, reported first quarter earnings and sales that missed estimates and said it will explore alternatives for the business. Options activity on Supervalu exploded on the news, with volume exceeding 65,000 contracts versus the stock’s average daily options volume of 4,722 contracts. Puts are changing hands around 1.5 times for each call options in play so far today. Buyers of more than 8,000 puts at the July $3.0 strike for a premium of $0.30 apiece this morning may profit at expiration next week if shares continue to spiral down. Bearish positioning in the Oct. $2.0 strike put, where a block of 5,000 contracts were picked up at a premium of $0.30 each, suggests one strategist may profit if the stock loses another 40% of its value within the next few months to expiration. Contrarian players are also leaving footprints across SVU options today, with around 6,100 calls at the July $3.0 strike purchased at a premium of $0.21 each earlier in the trading session. Shares in Supervalu would need to rebound 16% off the low of $2.76 in order for call buyers to make money at expiration next week.
KR – Kroger Co. – Shares in Kroger are down in sympathy with Supervalu today, trading lower by 3.95% to stand at $21.91 as of 12:45 p.m. in New York. Options on SVU’s competitors in the supermarket space are far more active than usual today, including options on Kroger. Volume currently stands at 5,000 contracts versus average daily options volume of 429 contracts. Trading traffic in options set to expire in January of 2013 points to continued volatility in the grocer’s shares. It looks like one trader purchased around 1,300 calls at the Jan. 2013 $22 strike for a premium of $1.40 apiece. The upside calls may be profitable at expiration next year should shares in Kroger rally 6.8% to top $23.40. Identical time-stamps on $22 strike call and $21 strike put activity suggest the same strategist also purchased most of the roughly 800 put options in play at the Jan. 2013 $21 strike for an average premium of $1.05 each. The puts make money if shares decline at least 9% from the current price to settle below $19.95 by January expiration.
IYR – iShares Dow Jones U.S. Real Estate Index ETF – A sizable ratio put spread initiated on the IYR this morning suggests the price of the underlying could return some of the double digit gains enjoyed during the first half of the year. Shares in the ETF are flat on the day at $64.23 as of 11:30 a.m. in New York, trading near levels not seen since 2008 after last week rising to a multi-year high of $65.18. Perhaps wary the IYR is vulnerable to sliding a bit further off recent highs, one strategist appears to have purchased 5,000 puts at the Aug. $63 strike for a premium of $1.12 each and sold 10,000 puts at the Aug. $60 strike at a premium of $0.46 apiece. The ratio spread cost a net premium of $0.20 per contract and positions the strategist to profit in the event shares in the IYR decline 2.2% to breach the effective breakeven point at $62.80. Maximum potential profits of $2.80 per contract are available on the position should the price of the underlying fund drop 6.6% to settle at $60.00 at expiration. The spread may serve as a hedge to protect the value of a long position in the underlying fund, or could be an outright bearish bet looking for to profit from limited bearish movement in the shares during the next five weeks.