Kroger (NYSE: KR) reported second-quarter earnings Tuesday and the results were disappointing to the Street and to options investors who may have bet the other way.
First, the bottom line up front. The grocery retailer earned 39 cents per share, down from 42 cents in the year-ago period and a nickel short of what analysts were expecting. Sales, meanwhile, dipped to $17.7 billion from $18.1 billion, also falling shy of Wall Street's consensus view.
Moreover, the company reduced its earnings forecast for fiscal 2009. KR now expects to earn between $1.90 and $2.00 for the year, down from the previously projected range of $2.00 to $2.05 per share and south of the Street's target of $2.05.
After the report, the stock was one of the market's biggest decliners and fell 7.6% to $20.43 after gaining 1.5% in Monday's trading. This may have taken some option traders by surprise, who apparently sold short-term, in-the-money puts in advance of this earnings report. In Monday's trading, nearly 7,000 options traded at the September 22.50 put strike, nearly all of which translated as new open interest today.
While the stock gained 33 cents on the day, the put lost about 25 cents or so to close at 70 cents. With a delta of 78, this suggests that these contracts were being sold to open.
The stock is now more than $2.00 south of this strike price, making these a losing bet with only three full trading days until expiration on Friday.
Beth works for The Options News Network (www.ONN.tv), which provides daily stock and options commentary. The above comments are not intended as trading advice.
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