Kroger Put Volume Spikes After Upgrade

KR stock is set to snap its longest losing streak since December

Bernstein upgraded Kroger Co (NYSE:KR) to "outperform" from "market perform," and boosted its price target to $33 -- a more than 37% premium to last night's close. The brokerage firm said Wall Street is not pricing in "KR's capacity to survive the short term and positioning for the long term," and it considers the grocery chain "a serious omnichannel player." In reaction, KR stock is up 1.4% to trade at $24.40.

Options traders don't seem convinced Kroger shares can sustain this positive price action. With around 90 minutes left in today's session, roughly 38,000 puts are on the tape -- 11 times the expected intraday amount and four times the number of calls traded. Two-thirds of the day's put volume has centered at the July 26 strike, and all signs pointing to buy-to-open activity here.

According to Trade-Alert, this would mark the second straight day put buyers have targeted this out-of-the-money strike, with more than 13,900 contracts added here overnight. In this case, options bears expect Kroger stock to resume its longer-term downtrend over the next nine weeks -- a time frame that likely includes the company's first-quarter earnings report, tentatively slated for release in mid-June.

Kroger shares have a history of negative earnings reactions, including a 10% next-day drop back in March. This bear gap had the stock plummeting from the $29 level all the way down to the $24-$26 neighborhood, with the latter serving as a stiff ceiling for KR over the last two months. The equity tested this region earlier this month, before embarking on a six-day losing streak -- its longest since December -- that could be snapped today.