Consumer Staples stocks have had a rough go so far in 2014, as measured by XLP. They are down almost 5% on the year, vs the SPX, which is down about 3%. One of the XLP’s components, Kellogg (K), caught my eye as there appeared to be a seller of near dated, very low priced puts – 2500 of the Feb 55s in front of next week’s Q4 earnings event scheduled for Feb 6th before the market open.
The one year chart below is a horror show, sitting right on massive long term support around the $58 level:
Whats interesting about the apparent seller of puts is that the trader would not lose on the trade unless the stock closed below levels not seen since late 2012 (green line below). This view could be supported by fact that the stock generally does not move on earnings, despite the options market implying about a 2% one day move, which is rich to the 1.15% 4qtr avg move.
Looking at the 2 yr chart below, the company would really need to whiff for those puts to be in the money on Feb expiration, approximately 5.5% lower than current levels:
I have no idea what the Q4 report will be like, but a consumer staple stock like K, widely perceived to be defensive in nature due to its high dividend yield north of 3%, and its 65% revenue exposure to North America, should help buoy the stock in times like these. From where we are sitting this looks like a fairly odd sale, unless possibly someone was short the stock and they are essentially putting a limit order in where they would be forced to cover, just below $55.