Options Traders Win Big on Kroger Stock's November Surge

Subscribers to Schaeffer's Weekend Trader Series service recently banked a quick 104% profit on our Kroger Co (NYSE:KR) April 20, 2018 21-strike call recommendation. Here's a closer look at why we became bullish on KR stock, and how the options trade we recommended on Sunday, Nov. 19, unfolded.

There is no denying that Kroger has had a tough year on the charts, with a number of grocery stocks taking a big hit after Amazon (AMZN) bought out Whole Foods (WFM). However, that fundamental challenge had been thoroughly priced into the shares by mid-November, and the stock was starting to show signs of life.

What's more, KR shares formed a base around the round $20 level in late September and early October, which corresponds with the stock's December 2015 record high of $42.75. Kroger stock had been moving higher in the subsequent weeks, and was trading above support at its 20- and 50-day moving averages -- which had previously formed a bullish cross.

However, there was plenty of skepticism levied toward the stock -- which could translate into buying power once it started to unwind. For starters, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.20 ranked in the 86th annual percentile, pointing to a heavier-than-usual put-skew among near-term traders.

Plus, nine of 12 analysts maintained a lackluster "hold" recommendation, while the stock's short interest-to-float ratio stood at a lofty 5.5. A round of upgrades and/or a short-covering rally could certainly create tailwinds for the shares.

In order for our recommended calls to reach their target profit, Kroger shares needed to rally more than 18%, based on the option's leverage ratio. While the equity edged higher during the low-volume Thanksgiving week, a strong third-quarter earnings report on Nov. 30 sent the KR gapping higher -- allowing us to close our position that day, when the stock was panning levels not seen since mid-June.