EOT Trade Alert – November 11, 2015

Trade Alert:

Buy KR January 15th 2016 $37.50 calls at $1.60 or better

 

Company Background:

The Kroger Company (KR) is an American retailer founded by Bernard Kroger in 1883 in Cincinnati, Ohio. It is the country’s largest supermarket general retailer and the twenty-third largest company.

 

Short-Term Catalyst:

Kroger just announced a $800 million deal to acquire Milwaukee-based Roundy’s Inc, which will add 151 stores to the Kroger line up. The stores will be located in new geographic locations for Kroger, including Chicago, Milwaukee, and Northern Wisconsin.

Kroger has also been on a mission to compete with organic food stores such as Whole Foods $WFM and Sprouts $SFM. They have made a big push into the market by offering items such as store brand organic groceries.

Their success in the natural and organic food market comes down to lower prices. They have been able to drive down prices so low that there is very little price difference between the organic option and its nonorganic counterpart.

In short, they’re running with the organic food craze that Whole Foods started.  But they’re doing it without costing their customer their whole paycheck.

The holidays are also approaching and in the past two years we have seen an increase in KR during this period. Last year the stock went up 15 points over the holiday season!  So, there are bullish seasonality factors at play here as well.

The company is clearly doing well. The stock is currently trading at $37.03.  The stock had a great run in 2014.  But the stock has stalled out this year.  I think the recent acquisition is just the thing to jump start the bullish momentum for KR.

Let’s grab call options on KR to profit from this bullish stock.

 

Trade Details:

Underlying Stock Symbol:	KR
Current Bid-Ask Price:	$1.45- $1.50
Option “Buy Up To” Price:	$1.60
Break-Even On Stock At Expiration:	$39.10
Maximum Risk Per Contract:	$160.00

 

Exit Strategy:

KR is trading at $37.03 per share.  Resistance levels will be at $39.25 and $42.00.  Remember, we want this stock to move higher.  Support levels will be at $35.00 and $34.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

 

Chart:

 

Category: EOT Trade Alert